Hexcel Q4 2025 Hexcel Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 Hexcel Corp Earnings Call
Speaker #1: Hello everyone,
Moderator: Hello everyone, and welcome to Hexcel Q4 and FY 2025 Earnings Call. Please note that this call is being recorded. After the speaker's prepared remarks, there will be a question-and-answer session. If you'd like to ask a question during that time, please press star followed by one on your telephone keypad. Thank you. I'd now like to hand the call over to Kurt Goddard, Vice President of Investor Relations. Please go ahead.
Speaker #1: and welcome to HEXCEL 4th quarter and full year 2025 earnings call. Please note that this call is being recorded. After the speakers prepare remarks, there will be a question and answer session.
Speaker #1: If you'd like to ask a question during that time, please press star followed by one on your telephone keypad. Thank you. I'd now like to hand the call over to Kurt Goddard, Vice President of Investor Relations.
Speaker #1: Please go ahead.
Kurt Goddard: Thanks, Ellie. Hello everyone. Welcome to Hexcel Corporation's Q4 and FY 2025 Earnings Conference Call. Before beginning, let me cover the formalities. I would like to remind everyone about the safe harbor provisions related to any forward-looking statements we may make during the course of this call.
Speaker #2: Thanks, Ellie. Hello everyone. Welcome to HEXCEL CORP /DE 4th quarter and full year 2025 earnings conference call. Before beginning, let me cover the formalities.
Speaker #2: I would like to remind everyone about the safe harbor provisions related to any forward-looking statements we may make during the course of this call.
Certain statements contained in this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They involve estimates, assumptions, judgments, and uncertainties caused by a variety of factors that could cause future actual results or outcomes to differ materially from our forward-looking statements today.
Speaker #2: Certain statements contained in this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They involve estimates, assumptions, judgments, and uncertainties caused by a variety of factors that could cause future actual results or outcomes to differ materially from our forward-looking statements today.
Operator: They involve estimates, assumptions, judgments, and uncertainties caused by a variety of factors that could cause future actual results or outcomes to differ materially from our forward-looking statements today. Such factors are detailed in the company's SEC filings and earnings release. A replay of this call will be available on the Investor Relations page of our website. Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be recorded or rebroadcast without our express permission. Your participation on this call constitutes your consent to that request. With me today are Tom Gentile, our Chairman, CEO, and President, and Mike Lenz, Interim Chief Financial Officer. The purpose of the call is to review our Q4 and FY 2025 results detailed in our news release issued yesterday. Now, let me turn the call over to Tom. Tom? Thanks, Kurt.
Such factors are detailed in the company's SEC filings and earnings release. A replay of this call will be available on the Investor Relations page of our website. Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be recorded or rebroadcast without our express permission.
Speaker #2: Such factors are detailed in the company's SEC filings and earnings release. A replay of this call will be available on the investor relations page of our website.
Speaker #2: Lastly, this call is being recorded by HEXCEL CORP and is copyrighted material. It cannot be recorded or rebroadcast without our express permission. Your participation on this call constitutes your consent to that request.
Your participation on this call constitutes your consent to that request. With me today are Tom Gentile, our Chairman, CEO, and President, and Mike Lenz, Interim Chief Financial Officer. The purpose of the call is to review our Q4 and FY 2025 results detailed in our news release issued yesterday. Now, let me turn the call over to Tom. Tom? Thanks, Kurt.
Speaker #2: With me today are Tom Gentile, our Chairman, CEO, and President, and Mike Lenz, Interim Chief Financial Officer. The purpose of the call is to review our fourth quarter and full year 2025 results detailed in our news release issued yesterday.
Speaker #2: Now let me turn the call over
Speaker #2: to Tom. Tom? Thanks,
Speaker #3: Kurt. Hello everyone, and thank you for joining us today for HEXCEL 4th quarter and full year 2025 earnings call. With positive signs emerging for a sustained ramp-up in commercial aircraft production rates, we are confident in HEXCEL's ability to meet this increasing demand.
Operator: Hello everyone, and thank you for joining us today for Hexcel's Q4 and FY 2025 Earnings Call. With positive signs emerging for a sustained ramp-up in commercial aircraft production rates, we are confident in Hexcel's ability to meet this increasing demand. Longer term, it is a promising outlook for the entire industry. IATA recently released data highlighting the current backlog for commercial aircraft has exceeded 17,000. The same report also noted that to date, there has been a delivery shortfall of at least 5,300 aircraft, underscoring the current imbalance between supply and demand for commercial aircraft. The fact that even with this historically high backlog, airlines are still ordering new aircraft underscores how much demand there is for these new aircraft that incorporate more lightweight material, are more fuel-efficient, and require less maintenance than the older aircraft they will replace.
Tom Gentile: Hello everyone, and thank you for joining us today for Hexcel's Q4 and FY 2025 Earnings Call. With positive signs emerging for a sustained ramp-up in commercial aircraft production rates, we are confident in Hexcel's ability to meet this increasing demand.
Longer term, it is a promising outlook for the entire industry. IATA recently released data highlighting the current backlog for commercial aircraft has exceeded 17,000. The same report also noted that to date, there has been a delivery shortfall of at least 5,300 aircraft, underscoring the current imbalance between supply and demand for commercial aircraft.
Speaker #3: Longer term, it is a promising outlook for the entire industry. IATA recently released data highlighting the current backlog for commercial aircraft has exceeded 17,000.
Speaker #3: The same report also noted that, to date, there has been a delivery shortfall of at least 5,300 aircraft, underscoring the current imbalance between supply and demand for commercial aircraft.
The fact that even with this historically high backlog, airlines are still ordering new aircraft underscores how much demand there is for these new aircraft that incorporate more lightweight material, are more fuel-efficient, and require less maintenance than the older aircraft they will replace.
Speaker #3: The fact that even with this historically high backlog, airlines are still ordering new aircraft underscores how much demand there is for these new aircraft that incorporate more lightweight material, are more fuel efficient, and require less maintenance than the older aircraft they will replace.
Speaker #3: This situation is positive for manufacturers like HEXCEL, as production rates are likely to remain at elevated levels for an extended period. As a vertically integrated fiber composites with a broad product manufacturer of advanced lightweight carbon portfolio, we are well positioned to support the needs of our commercial and defense customers.
Operator: This situation is positive for manufacturers like Hexcel, as production rates are likely to remain at elevated levels for an extended period. As a vertically integrated manufacturer of advanced lightweight carbon fiber composites with a broad product portfolio, we are well-positioned to support the needs of our commercial and defense customers. Also, we continue to focus on developing advanced material solutions for next-generation aircraft, as lightweight composite materials increasingly replace metals in aircraft structures to make them lighter, stronger, and more fuel-efficient. Combined with our commitment to operational excellence, we see Hexcel is well-positioned to benefit as commercial aircraft production rates continue to recover and funding for defense platforms increase globally. 2025 was a challenging year for us, as destocking by the OEMs, schedule delays, and lingering supply chain constraints for the OEMs impacted our plan.
This situation is positive for manufacturers like Hexcel, as production rates are likely to remain at elevated levels for an extended period. As a vertically integrated manufacturer of advanced lightweight carbon fiber composites with a broad product portfolio, we are well-positioned to support the needs of our commercial and defense customers.
Also, we continue to focus on developing advanced material solutions for next-generation aircraft, as lightweight composite materials increasingly replace metals in aircraft structures to make them lighter, stronger, and more fuel-efficient. Combined with our commitment to operational excellence, we see Hexcel is well-positioned to benefit as commercial aircraft production rates continue to recover and funding for defense platforms increase globally.
Speaker #3: Also, we continue to focus on developing advanced material solutions for next-generation aircraft as lightweight composite materials increasingly replace metals, and aircraft structures make them lighter, stronger, and more fuel efficient.
Speaker #3: Combined with our commitment to operational excellence, we see Hexcel as well positioned to benefit as commercial aircraft production rates continue to recover and funding for defense platforms increases globally.
2025 was a challenging year for us, as destocking by the OEMs, schedule delays, and lingering supply chain constraints for the OEMs impacted our plan. Despite these challenges, Hexcel closed the year on a positive note, as we continued to see an upturn in commercial orders that we first highlighted in our previous earnings call. This positive trend is setting us up for a stronger 2026.
Speaker #3: 2025 was a challenging year for us as destocking by the OEMs scheduled delays and lingering supply chain constraints for the OEMs impacted our plan.
Speaker #3: Despite these challenges, HEXCEL closed the year on a positive note as we continued to see an upturn in commercial orders that we first highlighted in our previous earnings call.
Operator: Despite these challenges, Hexcel closed the year on a positive note, as we continued to see an upturn in commercial orders that we first highlighted in our previous earnings call. This positive trend is setting us up for a stronger 2026. Across all our major programs, the A350, the A320, 787, and the 737, we see positive catalysts that a sustained recovery and ramp-up in commercial aircraft build rates is beginning to take hold. On the A350, the closing of the Spirit AeroSystems transaction moves major A350 production in-house for Airbus, eliminating a previous bottleneck. On the A320, engines have been a problem. Safran is expanding LEAP engine production capacity with the new final assembly line in Morocco. LEAP production continues to increase with record unit shipments in Q4 2025, and FY 2025 unit shipments exceeded the pre-pandemic 2019 prior peak.
Speaker #3: This positive trend is setting us up for a stronger 2026. Across all our major programs, the A350, the 320, 787, and the 737, we see positive catalysts that a sustained recovery and ramp-up in commercial aircraft build rates is beginning to take hold.
Across all our major programs, the A350, the A320, 787, and the 737, we see positive catalysts that a sustained recovery and ramp-up in commercial aircraft build rates is beginning to take hold. On the A350, the closing of the Spirit AeroSystems transaction moves major A350 production in-house for Airbus, eliminating a previous bottleneck.
Speaker #3: On the A350, the closing of the Spirit AeroSystems transaction moves major A350 production in-house for Airbus, eliminating a previous bottleneck. On the A320, engines have been a problem.
On the A320, engines have been a problem. Safran is expanding LEAP engine production capacity with the new final assembly line in Morocco. LEAP production continues to increase with record unit shipments in Q4 2025, and FY 2025 unit shipments exceeded the pre-pandemic 2019 prior peak.
Speaker #3: Safran is expanding leap engine production capacity with the new final assembly line in Morocco. Leap production continues to increase with record unit shipments in the fourth quarter 2025 and full year 2025 unit shipments exceeded the pre-pandemic 2019 prior peak.
Speaker #3: The GTF from Pratt & Whitney engine shipments have also been increasing and are forecast to increase further in 2026. And Airbus added two new A320 final assembly lines, one in the US and one in China.
Operator: The GTF from Pratt & Whitney engine shipments have also been increasing and are forecast to increase further in 2026. Airbus added 2 new A320 final assembly lines, one in the US and one in China. On the 787, Boeing broke ground to expand its Charleston, South Carolina, site to double 787 output. Boeing reported that they are transitioning production to 8 aircraft per month. They also said in their earnings call on Tuesday that the 787 inventory is more normalized with the supply chain now. On the 737, Boeing reported that they are producing at a rate of 42 aircraft per month after the FAA lifted the production cap.
The GTF from Pratt & Whitney engine shipments have also been increasing and are forecast to increase further in 2026. Airbus added 2 new A320 final assembly lines, one in the US and one in China. On the 787, Boeing broke ground to expand its Charleston, South Carolina, site to double 787 output.
Speaker #3: On the 787, Boeing broke ground to expand its Charleston, South Carolina site to double 787 output. And Boeing reported that they are transitioning production to eight aircraft per month.
Boeing reported that they are transitioning production to 8 aircraft per month. They also said in their earnings call on Tuesday that the 787 inventory is more normalized with the supply chain now. On the 737, Boeing reported that they are producing at a rate of 42 aircraft per month after the FAA lifted the production cap.
Speaker #3: They also said in their earnings call on Tuesday that the 787 inventory is more normalized with the supply chain now. And on the 737, Boeing reported that they are producing at a rate of 42 aircraft per month after the FAA lifted the production cap.
Speaker #3: Along with reduced supply chain disruption, these catalysts give us growing confidence that the long-awaited recovery in commercial aircraft production is coming into focus as impediments to the OEM reaching their peak build rates are receding and the destocking we experienced in 2025 appears to be largely behind us.
Operator: Along with reduced supply chain disruption, these catalysts give us growing confidence that the long-awaited recovery in commercial aircraft production is coming into focus as impediments to the OEM reaching their peak build rates are receding, and the destocking we experienced in 2025 appears to be largely behind us. Aircraft production peaked in 2018 at 1,734 aircraft. In 2025, production was still just 1,503 aircraft, or about 87% of the pre-pandemic level. In 2026, we should finally fully recover to pre-pandemic production levels as an industry, although wide-body production will probably not recover fully for a couple more years. With the historic backlog held by Airbus and Boeing, and our sole-source positions and long-term contracts on our commercial programs, Hexcel is in a strong position to benefit from the increase in commercial aircraft production.
Along with reduced supply chain disruption, these catalysts give us growing confidence that the long-awaited recovery in commercial aircraft production is coming into focus as impediments to the OEM reaching their peak build rates are receding, and the destocking we experienced in 2025 appears to be largely behind us.
Aircraft production peaked in 2018 at 1,734 aircraft. In 2025, production was still just 1,503 aircraft, or about 87% of the pre-pandemic level. In 2026, we should finally fully recover to pre-pandemic production levels as an industry, although wide-body production will probably not recover fully for a couple more years.
Speaker #3: Aircraft production peaked in 2018 at 1,734 aircraft. In 2025, production was still just 1,503 aircraft or about 87% of the pre-pandemic level. In 2026, we should finally fully recover to pre-pandemic production levels as an industry, although wide-body production will probably not recover fully for a couple more years.
With the historic backlog held by Airbus and Boeing, and our sole-source positions and long-term contracts on our commercial programs, Hexcel is in a strong position to benefit from the increase in commercial aircraft production.
Speaker #3: With the historic backlog held by Airbus and Boeing, and our sole-source position and long-term contracts on our commercial programs, HEXCEL is in a strong position to benefit from the increase in commercial aircraft production.
Speaker #3: As we have previously highlighted, when Airbus and Boeing achieve publicly disclosed peak build rates, we expect to generate $500 million in incremental sales annually from those sole-source contracts.
Operator: As we have previously highlighted, when Airbus and Boeing achieve publicly disclosed peak build rates, we expect to generate $500 million in incremental sales annually from those sole-source contracts. Additionally, growth from defense and space, as well as business and regional jets, will add over $200 million in additional sales. As our sales volumes increase, it drives greater operating leverage and margin expansion for our business. It was based on our confidence in this production ramp and our ability to execute on it that we initiated the $350 million accelerated share repurchase program last October. Shifting to opportunities in defense and space, we expect strong long-term demand in this market as defense budgets in the US and allied nations globally continue to increase due to an uncertain geopolitical environment and the development of new platforms. We continue to engage the US.
As we have previously highlighted, when Airbus and Boeing achieve publicly disclosed peak build rates, we expect to generate $500 million in incremental sales annually from those sole-source contracts. Additionally, growth from defense and space, as well as business and regional jets, will add over $200 million in additional sales.
Speaker #3: Additionally, growth from defense and space as well as business and regional jets will add over $200 million in additional sales. As our sales volumes increase, it drives greater operating leverage and margin expansion for our business.
As our sales volumes increase, it drives greater operating leverage and margin expansion for our business. It was based on our confidence in this production ramp and our ability to execute on it that we initiated the $350 million accelerated share repurchase program last October.
Speaker #3: It was based on our confidence in this production ramp and our ability to execute on it that we initiated the $350 million accelerated share repurchase program last October.
Shifting to opportunities in defense and space, we expect strong long-term demand in this market as defense budgets in the US and allied nations globally continue to increase due to an uncertain geopolitical environment and the development of new platforms. We continue to engage the US. Defense primes directly, as well as government stakeholders, highlighting Hexcel's unique value proposition.
Speaker #3: Shifting to opportunities in defense and space, we expect strong long-term demand in this market as defense budgets in the US and allied nations globally continue to increase due to an uncertain geopolitical environment and the development of new platforms.
Operator: Defense primes directly, as well as government stakeholders, highlighting Hexcel's unique value proposition. We are well-positioned to serve defense customers with Hexcel's innovative lightweight advanced materials that provide defense and space customers the greater payload, greater range, and low observability that those platforms require. Additionally, our vertically integrated operations in the U.S. and across Europe provide those governments with secure and sovereign access to advanced carbon fiber that is critical for defense platforms. Our strong positions in both commercial and defense markets underscore Hexcel's ability to capture growth going forward. With this foundation in place, let me now turn to our financial performance for Q4 and FY 2025, which reflects the actions we have taken to navigate near-term challenges and position for long-term success. Our 2025 FY results were impacted by Airbus revising the A350 production schedule, combined with channel destocking on the A350 and other programs.
Speaker #3: Directly, as well as with government, we continue to engage the U.S. defense prime stakeholders, highlighting Hexcel's unique value proposition. We are well positioned to serve defense customers with Hexcel's innovative, lightweight advanced materials that provide defense and space customers with the greater payload, greater range, and low observability that those platforms require.
We are well-positioned to serve defense customers with Hexcel's innovative lightweight advanced materials that provide defense and space customers the greater payload, greater range, and low observability that those platforms require. Additionally, our vertically integrated operations in the U.S. and across Europe provide those governments with secure and sovereign access to advanced carbon fiber that is critical for defense platforms.
Speaker #3: Additionally, our vertically integrated operations in the US and across Europe provide those governments with secure and sovereign access to advanced carbon fiber that is critical for defense platforms.
Our strong positions in both commercial and defense markets underscore Hexcel's ability to capture growth going forward. With this foundation in place, let me now turn to our financial performance for Q4 and FY 2025, which reflects the actions we have taken to navigate near-term challenges and position for long-term success. Our 2025 FY results were impacted by Airbus revising the A350 production schedule, combined with channel destocking on the A350 and other programs.
Speaker #3: Our strong positions, in both commercial and defense markets, underscore HEXCEL's ability to capture growth going forward. With this foundation in place, let me now turn to our financial performance for the fourth quarter and full year 2025, which reflects the actions we have taken to navigate near-term challenges and position for long-term success.
Speaker #3: Our 2025 full year results were impacted by Airbus revising the A350 production schedule combined with channel destocking on the A350 and other programs. In 2025, HEXCEL achieved full year sales of $1.894 billion just at EPS of $1.76 and free cash flow of $157 million.
Operator: In 2025, Hexcel achieved FY sales of $1.894 billion, adjusted EPS of $1.76, and free cash flow of $157 million. In Q4, Hexcel generated $492 million in sales, up 3.7% from 2024, highlighting the positive trend in commercial orders as we enter 2026. Commercial aerospace sales in Q4 were $299.5 million, an increase of 7.6% compared to 2024. This increase was due to strong growth in the A320, along with increases in 787, and 737 volumes, as well as increased regional jet sales. The overall sales volume increase in the commercial segment was partially offset by lower sales volume in the A350 due to lingering destocking in the quarter. In our defense-based and other segments, sales were $191.8 million in Q4, down 1.9% compared to the same period in 2024.
In 2025, Hexcel achieved FY sales of $1.894 billion, adjusted EPS of $1.76, and free cash flow of $157 million. In Q4, Hexcel generated $492 million in sales, up 3.7% from 2024, highlighting the positive trend in commercial orders as we enter 2026. Commercial aerospace sales in Q4 were $299.5 million, an increase of 7.6% compared to 2024.
Speaker #3: In the fourth quarter, HEXCEL generated $492 million in sales, up 3.7% from 2024, highlighting the positive trend in commercial orders as we enter 2026.
Speaker #3: Commercial aerospace sales in the fourth quarter were $299.5 million and increased 7.6% compared to 2024. This increase was due to strong growth in the A320, along with increases in 787 and 737 volumes, as well as increased regional jet sales.
This increase was due to strong growth in the A320, along with increases in 787, and 737 volumes, as well as increased regional jet sales. The overall sales volume increase in the commercial segment was partially offset by lower sales volume in the A350 due to lingering destocking in the quarter. In our defense-based and other segments, sales were $191.8 million in Q4, down 1.9% compared to the same period in 2024.
Speaker #3: The overall sales volume increase in the commercial segment was partially offset by lower sales volume in the A350 due to lingering destocking in the quarter.
Speaker #3: In our defense-based and other segment sales were $191.8 million in the fourth quarter, down 1.9% compared to the same period in 2024. Taking a closer look at this market, we experienced increased sales for defense and space due to strengthened military rotorcraft programs and launchers but sales overall were lower due to the divestment of our Austrian-based industrial business that we announced at the end of the third quarter in 2025.
Operator: Taking a closer look at this market, we experienced increased sales for defense and space due to strengthened military rotorcraft programs and launchers, but sales overall were lower due to the divestment of our Austrian-based industrial business that we announced at the end of Q3 in 2025. Overall, our FY 2025 results were impacted by Airbus-initiated schedule changes on the A350 program, destocking by the OEMs, and charges related to the disposition of non-core businesses in Austria and Connecticut. In addition, we closed a facility in Belgium as we rationalized our footprint to streamline operations. Commercial order activity continued to trend higher throughout the quarter, which we expected and first highlighted in our Q3 earnings call. Also, we believe the majority of destocking by the OEMs is now generally behind us. However, this remains a watch item for all of us, and we will continue to monitor it throughout 2026.
Taking a closer look at this market, we experienced increased sales for defense and space due to strengthened military rotorcraft programs and launchers, but sales overall were lower due to the divestment of our Austrian-based industrial business that we announced at the end of Q3 in 2025.
Overall, our FY 2025 results were impacted by Airbus-initiated schedule changes on the A350 program, destocking by the OEMs, and charges related to the disposition of non-core businesses in Austria and Connecticut. In addition, we closed a facility in Belgium as we rationalized our footprint to streamline operations.
Speaker #3: Overall, our full year 2025 results were impacted by Airbus-initiated schedule changes on the A350 program, destocking by the OEMs, and charges related to the disposition of non-core businesses in Austria and Connecticut.
Speaker #3: In addition, we closed the facility in Belgium as we rationalized our footprint to streamline operations. Commercial order activity continued to trend higher throughout the quarter.
Commercial order activity continued to trend higher throughout the quarter, which we expected and first highlighted in our Q3 earnings call. Also, we believe the majority of destocking by the OEMs is now generally behind us. However, this remains a watch item for all of us, and we will continue to monitor it throughout 2026.
Speaker #3: Which we expected and first highlighted in our third quarter earnings call. Also, we believe the majority of destocking by the OEMs is now generally behind us.
Speaker #3: However, this remains a watch item for all of us, and we will continue to monitor it throughout 2026. While our results reflected the headwinds we faced in 2025, they also underscore the importance of the operational discipline we maintain throughout the year.
Operator: While our results reflected the headwinds we faced in 2025, they also underscored the importance of the operational discipline we maintained throughout the year. Let me share with you a few of the actions we took to strengthen our operational excellence foundation for the future. As we dealt with the impact from schedule changes and destocking throughout 2025, we kept a strong focus on cost control and operational discipline. This included the business rationalization I mentioned earlier as we exited industrial markets like wind energy and winter recreation markets, and we continue to streamline operations in 2026. We just announced a proposal to refocus our Leicester, UK site to perform work solely related to commercial aerospace development. Along with our cost control initiatives, we continue to invest in productivity enhancements in our factories through automation, AI-driven workflows, and digitization, while maintaining high levels of safety and quality.
While our results reflected the headwinds we faced in 2025, they also underscored the importance of the operational discipline we maintained throughout the year. Let me share with you a few of the actions we took to strengthen our operational excellence foundation for the future.
Speaker #3: Let me share with you a few of the actions we took to strengthen our operational excellence foundation for the future. As we dealt with the impact from schedule changes and destocking throughout 2025, we kept a strong focus on cost control and operational discipline.
As we dealt with the impact from schedule changes and destocking throughout 2025, we kept a strong focus on cost control and operational discipline. This included the business rationalization I mentioned earlier as we exited industrial markets like wind energy and winter recreation markets, and we continue to streamline operations in 2026.
Speaker #3: This included the business rationalization I mentioned earlier as we exited industrial markets like wind energy and winter recreation markets, and we continued to streamline operations in 2026.
We just announced a proposal to refocus our Leicester, UK site to perform work solely related to commercial aerospace development. Along with our cost control initiatives, we continue to invest in productivity enhancements in our factories through automation, AI-driven workflows, and digitization, while maintaining high levels of safety and quality.
Speaker #3: We just announced a proposal to refocus our Lester UK site to perform work solely related to commercial aerospace development. Along with our cost control initiatives, we continued to invest in productivity enhancements in our factories through automation, AI-driven workflows, and digitization.
Speaker #3: While maintaining high levels of safety and quality. Also, we remain focused on managing headcount closely. We finished 2025 about 330 positions fewer compared to our year-end headcount for 2024, and well below our original plan for 2025.
Operator: Also, we remain focused on managing headcount closely. We finished 2025 about 330 positions fewer compared to our year-end headcount for 2024, and well below our original plan for 2025. This delta reflects an intentional use of attrition to lower headcount during 2025, which was slow, along with the headcount reductions that resulted from our site rationalization activity. Going into 2026, we are starting to evaluate some selective hiring earlier in the year to support increased A350 production, followed by some general hiring that will likely begin around mid-year. In Q3 of 2025, we launched the $350 million accelerated share repurchase program, which underscores our confidence in Hexcel's long-term growth. This decision reflects our strategy to invest in Hexcel as we see tremendous opportunity to benefit from increasing commercial aircraft build rates and growth organically in defense and space over the coming years.
Also, we remain focused on managing headcount closely. We finished 2025 about 330 positions fewer compared to our year-end headcount for 2024, and well below our original plan for 2025. This delta reflects an intentional use of attrition to lower headcount during 2025, which was slow, along with the headcount reductions that resulted from our site rationalization activity.
Speaker #3: This delta reflects an intentional use of attrition to lower headcount during 2025, which was slow. Along with the headcount reductions that resulted from our site rationalization activity.
Going into 2026, we are starting to evaluate some selective hiring earlier in the year to support increased A350 production, followed by some general hiring that will likely begin around mid-year.
Speaker #3: Going into 2026, we are starting to evaluate some selective hiring earlier in the year to support increased A350 production. Followed by some general hiring that will likely begin around mid-year.
In Q3 of 2025, we launched the $350 million accelerated share repurchase program, which underscores our confidence in Hexcel's long-term growth. This decision reflects our strategy to invest in Hexcel as we see tremendous opportunity to benefit from increasing commercial aircraft build rates and growth organically in defense and space over the coming years.
Speaker #3: In the third quarter of 2025, we launched the $350 million accelerated share repurchase program, which underscores our confidence in HEXCEL's long-term growth. This decision reflects our strategy to invest in HEXCEL as we see tremendous opportunity to benefit from increasing commercial aircraft build rates and growth organically in defense and space over the coming years.
Speaker #3: Also, as we noted in the third quarter earnings call, I want to be very clear that we remain committed to disciplined financial management and our targeted leverage range of one and a half to two times net debt to EBITDA.
Operator: Also, as we noted in the Q4 earnings call, I want to be very clear that we remain committed to disciplined financial management and our targeted leverage range of 1.5 to 2 times net debt to EBITDA. We intend to repay the $350 million we borrowed from our revolver for the ASR as soon as possible in 2026 to return Hexcel to that target leverage range. We also announced a 6% increase in the quarterly dividend to $0.18 per share, reflecting our positive outlook and Hexcel's long-term growth and strong cash generation profile. Since the beginning of 2024, we have returned over $800 million to stockholders through dividends and share repurchases. Along with strengthening our financial foundation in 2025, we also focused on leadership across the organization. We welcomed several new members to the Hexcel leadership team, bringing fresh perspectives and deep industry expertise to help drive our strategic priorities.
Also, as we noted in the Q4 earnings call, I want to be very clear that we remain committed to disciplined financial management and our targeted leverage range of 1.5 to 2 times net debt to EBITDA. We intend to repay the $350 million we borrowed from our revolver for the ASR as soon as possible in 2026 to return Hexcel to that target leverage range.
Speaker #3: We intend to repay the $350 million we borrowed from our revolver for the ASR as soon as possible in 2026 to return HEXCEL to that target leverage range.
We also announced a 6% increase in the quarterly dividend to $0.18 per share, reflecting our positive outlook and Hexcel's long-term growth and strong cash generation profile. Since the beginning of 2024, we have returned over $800 million to stockholders through dividends and share repurchases.
Speaker #3: We also announced a 6% increase in the quarterly dividend to $0.18 per share, reflecting our positive outlook and Hexcel's long-term growth and strong cash generation profile.
Speaker #3: of 2024, we have returned over $800 Since the beginning million to stockholders through dividends and share repurchases. Along with strengthening our financial foundation in 2025, we also focused on leadership across the organization.
Along with strengthening our financial foundation in 2025, we also focused on leadership across the organization. We welcomed several new members to the Hexcel leadership team, bringing fresh perspectives and deep industry expertise to help drive our strategic priorities.
Speaker #3: We welcomed several new members to the HEXCEL leadership team, bringing fresh perspectives and deep industry expertise to help drive our strategic priorities. This includes Mike Lenz, who joined us as our interim CFO while we conduct a search for the next permanent CFO.
Operator: This includes Mike Lenz, who joined us as our interim CFO while we conduct the search for the next permanent CFO. You'll hear from Mike shortly. We have made great progress in the CFO search, and we are focused on identifying the right person for Hexcel. Also, we added new functional and business program leaders across defense, safety, R&D, quality, and operations, all areas that are critical to delivering on customer commitment and maintaining the highest standards of excellence. Before I turn it over to Mike, let me briefly highlight our outlook for 2026. I want to emphasize that 2025 was a year of disciplined execution as we managed through the schedule changes and the impact from destocking. We closed the year with encouraging trends, including an uptick in commercial orders and the margin rate for Q4, carrying over a trend that began the previous quarter.
This includes Mike Lenz, who joined us as our interim CFO while we conduct the search for the next permanent CFO. You'll hear from Mike shortly. We have made great progress in the CFO search, and we are focused on identifying the right person for Hexcel.
Speaker #3: You'll hear from Mike shortly. We have made great progress on the CFO search, and we are focused on identifying the right person for HEXCEL.
Also, we added new functional and business program leaders across defense, safety, R&D, quality, and operations, all areas that are critical to delivering on customer commitment and maintaining the highest standards of excellence.
Speaker #3: Also, we added new functional and business program leaders across defense, safety, R&D, quality, and operations. All areas that are critical to delivering on customer commitments and maintaining the excellence.
Before I turn it over to Mike, let me briefly highlight our outlook for 2026. I want to emphasize that 2025 was a year of disciplined execution as we managed through the schedule changes and the impact from destocking. We closed the year with encouraging trends, including an uptick in commercial orders and the margin rate for Q4, carrying over a trend that began the previous quarter.
Speaker #3: Before I turn it over to Mike, let me briefly highlight our outlook for 2026. I want to emphasize that 2025 was the year of disciplined execution as we managed through the schedule changes and the impact from destocking.
Speaker #3: We closed the year with encouraging trends, including an uptick in commercial orders in the margin rate for the fourth quarter. Carrying over a trend that began the previous quarter.
Speaker #3: We believe the commercial recovery is gaining traction as OEMs take steps toward higher production rates across all our key programs. At the same time, defense and space markets remain robust, with budgets increasing and the demand for advanced composite solutions across rotorcraft, fixed-wing, and space applications.
Operator: We believe the commercial recovery is gaining traction as OEMs take steps toward higher production rates across all our key programs. At the same time, defense and space markets remain robust, with budgets increasing and the demand for advanced composite solutions across rotorcraft, fixed wing, and space applications. As OEMs hit their publicly disclosed peak commercial build rates before the end of the decade, this will, as I said, generate $500 million in incremental sales from existing contracts with Airbus and Boeing, and we expect to generate in excess of $1 billion in free cash flow cumulatively over the next four years from 2026 to 2029. In 2026, we expect sales in the range of $2.0 billion to $2.1 billion, adjusted EPS between $210 and $230, and free cash flow greater than $195 million.
We believe the commercial recovery is gaining traction as OEMs take steps toward higher production rates across all our key programs. At the same time, defense and space markets remain robust, with budgets increasing and the demand for advanced composite solutions across rotorcraft, fixed wing, and space applications.
As OEMs hit their publicly disclosed peak commercial build rates before the end of the decade, this will, as I said, generate $500 million in incremental sales from existing contracts with Airbus and Boeing, and we expect to generate in excess of $1 billion in free cash flow cumulatively over the next four years from 2026 to 2029.
Speaker #3: As OEMs hit their publicly disclosed peak commercial build rates before the end of the decade, this will, as I said, generate $500 million in incremental sales from existing contracts with Airbus and Boeing, and we expect to generate in excess of a billion dollars in free cash flow cumulatively over the next four years from 2026 to 2029.
In 2026, we expect sales in the range of $2.0 billion to $2.1 billion, adjusted EPS between $210 and $230, and free cash flow greater than $195 million. Increased operating leverage from higher sales volumes, along with the disciplined execution and focus on controlling costs, will be the primary driver of these results. We believe that our guidance reflects prudent assumptions regarding commercial aircraft rate ramps. Now, Mike will provide additional details of our financial results. Mike.
Speaker #3: In 2026, we expect sales in the range of $2.0 billion to $2.1 billion, adjusted EPS between $2.10 and $2.30, and free cash flow greater than $195 million.
Speaker #3: Increased operating leverage from higher sales volume along with the disciplined execution and focus on controlling costs will be the primary driver of these results.
Operator: Increased operating leverage from higher sales volumes, along with the disciplined execution and focus on controlling costs, will be the primary driver of these results. We believe that our guidance reflects prudent assumptions regarding commercial aircraft rate ramps. Now, Mike will provide additional details of our financial results. Mike. Thank you, Tom. We closed the year with a strong Q4 and a return to year-over-year growth. The higher sales supported adjusted operating margin expansion, illustrating the operating leverage opportunity ahead. The commercial aerospace OE recovery continues to become more apparent both in our business and in the broader supply chain. Total Q4 2025 sales of $491 million increased 1.6% in constant currency. Growth in the commercial aerospace market was partially offset by lower defense, space, and other sales, following the divestment of the Austrian industrial business on 30 September 2025.
Speaker #3: We believe that our guidance reflects prudent assumptions regarding commercial aircraft rate ramps. Now, Mike will provide additional details of our financial results.
Speaker #3: Mike. Thank you, Tom.
Mike Lenz: Thank you, Tom. We closed the year with a strong Q4 and a return to year-over-year growth. The higher sales supported adjusted operating margin expansion, illustrating the operating leverage opportunity ahead. The commercial aerospace OE recovery continues to become more apparent both in our business and in the broader supply chain.
Speaker #2: We close the year with a strong fourth quarter and a return to year-over-year growth. The higher sales supported adjusted operating margin expansion illustrating the operating leverage opportunity ahead.
Speaker #2: The commercial aerospace OE recovery continues to become more apparent, both in our business and in the broader supply chain. Total fourth quarter 2025 sales of $491 million increased 1.6% in constant currency.
Total Q4 2025 sales of $491 million increased 1.6% in constant currency. Growth in the commercial aerospace market was partially offset by lower defense, space, and other sales, following the divestment of the Austrian industrial business on 30 September 2025.
Speaker #2: Growth in the commercial aerospace market was partially offset by lower defense, space, and other sales, following the divestment of the Austrian industrial business on September 30, 2025.
Speaker #2: By market, commercial aerospace fourth quarter 2025 sales were $300 million, representing approximately 61% of total fourth quarter sales. Fourth quarter commercial aerospace sales increased 5.8% compared to the fourth quarter of 2024.
Operator: By market, commercial aerospace Q4 2025 sales were $300 million, representing approximately 61% of total Q4 sales. Q4 commercial aerospace sales increased 5.8% compared to Q4 of 2024. Sales increased for the A320, 787, and 737, whereas sales decreased for the A350 as a result of some lingering destocking. Sales for other commercial aerospace in the Q4 increased 16.1% year-over-year, led by regional jets. Defense, space, and other represented approximately 39% of Q4 sales and totaled $192 million, decreasing 4.3% on a constant currency basis from the same period in 2024. Sales were basically unchanged year-over-year on an organic basis. Demand was strong for a European fighter program and European helicopter programs, as well as launchers and satellites, offset by lower automotive sales and the absence of the divested Austrian industrial business. Gross margin of 24.6% in Q4 decreased from 25% in Q4 of 2024, principally due to sales mix.
By market, commercial aerospace Q4 2025 sales were $300 million, representing approximately 61% of total Q4 sales. Q4 commercial aerospace sales increased 5.8% compared to Q4 of 2024. Sales increased for the A320, 787, and 737, whereas sales decreased for the A350 as a result of some lingering destocking.
Speaker #2: Sales increased for the A320, 787, and 737, whereas sales decreased for the A350 as a result of some lingering destocking. Sales for other commercial aerospace in the fourth quarter increased 16.1% year-over-year, led by regional jets.
Sales for other commercial aerospace in the Q4 increased 16.1% year-over-year, led by regional jets. Defense, space, and other represented approximately 39% of Q4 sales and totaled $192 million, decreasing 4.3% on a constant currency basis from the same period in 2024.
Speaker #2: Defense, space, and other represented approximately 39% of fourth quarter sales and totaled $192 million, decreasing 4.3% on a constant currency basis from the same period in year-over-year on an organic 2024.
Sales were basically unchanged year-over-year on an organic basis. Demand was strong for a European fighter program and European helicopter programs, as well as launchers and satellites, offset by lower automotive sales and the absence of the divested Austrian industrial business.
Speaker #2: Sales were basically unchanged basis. Demand was strong for a European fighter program and European helicopter programs as well as launchers and satellites, offset by lower automotive sales and the absence of the divested Austrian industrial business.
Gross margin of 24.6% in Q4 decreased from 25% in Q4 of 2024, principally due to sales mix. As a percentage of sales, operating expenses, including selling, general, and administrative expenses and R&D expenses, were 11.4% in Q4 of 2025, compared to 13% in the comparable prior year period.
Speaker #2: Gross margin of 24.6% in the fourth quarter decreased from 25% in the fourth quarter '24, principally due to sales mix. As a percentage of sales, operating expenses, including selling general administrative expenses and R&T expenses, were 11.4% in the fourth quarter of 2025 compared to 13% in the comparable prior year period.
Operator: As a percentage of sales, operating expenses, including selling, general, and administrative expenses and R&D expenses, were 11.4% in Q4 of 2025, compared to 13% in the comparable prior year period. We continue to focus on cost control, and there is leverage within our operating cost structure so that expenses should grow slower than the rate of sales growth. Adjusted operating income in Q4 was $65 million, or 13.3% of sales, compared to $57 million, or 12.1% of sales in the comparable prior year period. In terms of foreign exchange, Hexcel benefits when the dollar is strong. We generally sell in dollars for commercial aerospace, yet we have a significant European presence and European cost base. We hedge our operating profit over a 10-quarter time horizon, so foreign exchange gains and losses are layered into the financial results over time.
We continue to focus on cost control, and there is leverage within our operating cost structure so that expenses should grow slower than the rate of sales growth. Adjusted operating income in Q4 was $65 million, or 13.3% of sales, compared to $57 million, or 12.1% of sales in the comparable prior year period.
Speaker #2: We continue to focus on cost control and there is leverage within our operating cost structure so that expenses should grow slower than the rate of sales growth.
Speaker #2: Adjusted operating income in the fourth quarter was $65 million, or 13.3% of sales, compared to $57 million or 12.1% of sales in the comparable prior year period.
In terms of foreign exchange, Hexcel benefits when the dollar is strong. We generally sell in dollars for commercial aerospace, yet we have a significant European presence and European cost base. We hedge our operating profit over a 10-quarter time horizon, so foreign exchange gains and losses are layered into the financial results over time.
Speaker #2: In terms of foreign exchange, HEXCEL benefits when the dollar is strong. We generally sell in dollars for commercial aerospace, yet we have a significant European presence and European cost base.
Speaker #2: We hedge our operating profit over a 10-quarter time horizon so foreign exchange gains and losses are layered into the financial results over time. Foreign exchange has become a headwind as the impact of the weaker dollar is now being felt.
Operator: Foreign exchange has become a headwind as the impact of the weaker dollar is now being felt. Q4 2025 operating margins were negatively impacted by approximately 110 basis points from foreign exchange. In contrast, Q4 2024 had a favorable impact of approximately 60 basis points. Now turning to our two segments. The composite materials segment represented 80% of total Q4 sales and generated an adjusted operating margin of 20.5%. This compares to an adjusted operating margin of 15.3% in the prior year period. The engineered products segment, which is comprised of our structures and engineered core businesses, represented 20% of total sales and generated an adjusted operating margin of 11.1%, which compares to an adjusted operating margin of 10.7% in the prior year period. For the full year of 2025, we met our updated sales and Adjusted EPS guidance.
Foreign exchange has become a headwind as the impact of the weaker dollar is now being felt. Q4 2025 operating margins were negatively impacted by approximately 110 basis points from foreign exchange. In contrast, Q4 2024 had a favorable impact of approximately 60 basis points. Now turning to our two segments.
Speaker #2: Fourth quarter 2025 operating margins were negatively impacted by approximately 110 basis points from foreign exchange. In contrast, fourth quarter 2024 had a favorable impact of approximately 60 basis points.
Speaker #2: Now turning to our two segments. The Composite Materials segment represented 80% of total fourth-quarter sales and generated an adjusted operating margin of 20.5%.
The composite materials segment represented 80% of total Q4 sales and generated an adjusted operating margin of 20.5%. This compares to an adjusted operating margin of 15.3% in the prior year period.
Speaker #2: This compares to an adjusted operating margin of 15.3% in the prior year period. The engineered products segment, which is comprised of our structures and engineered core businesses, represented 20% of total sales, and generated an adjusted operating margin of 11.1%.
The engineered products segment, which is comprised of our structures and engineered core businesses, represented 20% of total sales and generated an adjusted operating margin of 11.1%, which compares to an adjusted operating margin of 10.7% in the prior year period. For the full year of 2025, we met our updated sales and Adjusted EPS guidance.
Speaker #2: Which compares to an adjusted operating margin of 10.7% in the prior year period. For the full year 2025, we met our updated sales and adjusted EPS guidance.
Speaker #2: The lower tax rate was adjusted EPS. The lower effective tax rate in 2025 primarily reflects the tax benefits associated with restructuring charges for the closure of the Belgium facility, which contributed roughly a 4% rate reduction.
Operator: The lower tax rate was supportive, contributing roughly $0.02 to adjusted EPS. The lower effective tax rate in 2025 primarily reflects the tax benefits associated with restructuring charges for the closure of the Belgium facility, which contributed roughly a 4% rate reduction. To share some further perspective on our commercial aerospace business for the full year, latest generation wide-body sales comprised about 1/3 of total commercial aerospace sales in 2025. Narrow-body sales were also about 1/3 of sales, and legacy commercial aircraft were about 10%. Other commercial aerospace, including business jets and regional aircraft, accounted for the remainder at somewhat less than 25%. Shifting to full year 2025 defense, space, and other sales, approximately 1/3 of defense and space 2025 sales were outside of the US. Our international defense and space sales are predominantly from customers located in NATO-aligned countries and also include customers in India, Brazil, and South Korea.
The lower tax rate was supportive, contributing roughly $0.02 to adjusted EPS. The lower effective tax rate in 2025 primarily reflects the tax benefits associated with restructuring charges for the closure of the Belgium facility, which contributed roughly a 4% rate reduction.
To share some further perspective on our commercial aerospace business for the full year, latest generation wide-body sales comprised about 1/3 of total commercial aerospace sales in 2025. Narrow-body sales were also about 1/3 of sales, and legacy commercial aircraft were about 10%.
Speaker #2: To share some further perspective on our commercial aerospace business for the full year, latest generation wide-body sales comprised about one-third of total commercial aerospace sales in 2025.
Speaker #2: sales were also about one-third of Narrow-body sales, and legacy commercial aircraft were about 10%. Other commercial aerospace, including business jets and regional aircraft, accounted for the remainder at somewhat less than 25%.
Other commercial aerospace, including business jets and regional aircraft, accounted for the remainder at somewhat less than 25%. Shifting to full year 2025 defense, space, and other sales, approximately 1/3 of defense and space 2025 sales were outside of the US. Our international defense and space sales are predominantly from customers located in NATO-aligned countries and also include customers in India, Brazil, and South Korea.
Speaker #2: Shifting to full year 2025 defense, space, and other sales, approximately one-third of defense and space 2025 sales were outside of the US. Our international defense and space sales are predominantly from customers located in NATO-aligned countries and also include customers in India, Brazil, and South Korea.
Speaker #2: Net cash provided by operating activities in 2025 was cash provided of $290 $231 million, compared to net million in 2024. Working capital was a use of cash of 1.5 million in 2025, compared to a cash use of nearly 1 million in 2024.
Operator: Net cash provided by operating activities in 2025 was $231 million, compared to net cash provided of $290 million in 2024. Working capital was a use of cash of $1.5 million in 2025, compared to a cash use of nearly $1 million in 2024. Capital expenditures on an accrual basis were $77 million in 2025, compared to $81 million in the comparable prior year period. Free cash flow in 2025 was $157 million, which compares to $233 million in 2024. There are always a number of moving parts with working capital at year-end, and free cash flow came in below our guidance. Strong sales in December led to an end-of-year quarter increase in accounts receivable greater than we forecasted, combined with lower-than-projected payables at year-end, along with some retirement plan flows. Adjusted EBITDA totaled $346 million in 2025, compared to $382 million in 2024.
Net cash provided by operating activities in 2025 was $231 million, compared to net cash provided of $290 million in 2024. Working capital was a use of cash of $1.5 million in 2025, compared to a cash use of nearly $1 million in 2024. Capital expenditures on an accrual basis were $77 million in 2025, compared to $81 million in the comparable prior year period.
Speaker #2: Capital expenditures on an accrual basis were $77 million in 2025, compared to $81 million in the comparable prior year period. Free cash flow in 2025 was $157 million, which compares to $233 million in 2024.
Free cash flow in 2025 was $157 million, which compares to $233 million in 2024. There are always a number of moving parts with working capital at year-end, and free cash flow came in below our guidance.
Speaker #2: There are always a number of moving parts with working capital at year-end, and free cash flow came in below our guidance. Strong sales in December led to an end-of-the-year quarter increase in accounts receivable greater than we forecasted combined with lower-than-projected payables at year-end, along with some retirement plan flows.
Strong sales in December led to an end-of-year quarter increase in accounts receivable greater than we forecasted, combined with lower-than-projected payables at year-end, along with some retirement plan flows. Adjusted EBITDA totaled $346 million in 2025, compared to $382 million in 2024.
Speaker #2: Adjusted EBITDA totaled $346 million in 2025, compared to $382 million in 2024. Following our revolver borrowing to finance the ASR, our leverage is temporarily elevated.
Operator: Following our revolver borrowing to finance the ASR, our leverage is temporarily elevated. Leverage, defined as net debt to last 12 months adjusted EBITDA, was just under 2.7 times at year-end 2025. As Tom said, we remain firmly committed to a disciplined financial policy to returning leverage to the targeted range of 1.5 to 2.0 times as soon as possible during 2026. The board of directors declared an $0.18 quarterly dividend yesterday, and this reflects a 1 penny or 6% increase compared to the prior dividend. The dividend is payable to stockholders of record as of 9 February, with a payment date of 17 February. I will conclude by sharing some additional details regarding our 2026 guidance.
Following our revolver borrowing to finance the ASR, our leverage is temporarily elevated. Leverage, defined as net debt to last 12 months adjusted EBITDA, was just under 2.7 times at year-end 2025. As Tom said, we remain firmly committed to a disciplined financial policy to returning leverage to the targeted range of 1.5 to 2.0 times as soon as possible during 2026.
Speaker #2: Leverage defined as net debt to last 12 months adjusted EBITDA was just under 2.7 times at year-end 2025 and, as Tom said, we remain firmly committed to a disciplined financial policy to returning leverage to the targeted range of 1.5 to 2.0 times as soon as possible during 2026.
The board of directors declared an $0.18 quarterly dividend yesterday, and this reflects a 1 penny or 6% increase compared to the prior dividend. The dividend is payable to stockholders of record as of 9 February, with a payment date of 17 February. I will conclude by sharing some additional details regarding our 2026 guidance.
Speaker #2: The board of directors declared an $0.18 quarterly dividend yesterday, which reflects a one penny, or 6%, increase compared to the prior dividend. The dividend is payable to stockholders of record as of February 9th, with a payment date of February 17th.
Speaker #2: I will conclude by sharing some additional details regarding our 2026 guidance. In terms of comparing 2026 sales guidance to our actual 2025 sales, recall that the divested industrial facility in Austria generated just under $30 million of sales in 2025, so those sales are not recurring in 2026.
Operator: In terms of comparing 2026 sales guidance to our actual 2025 sales, recall that the divested industrial facility in Austria generated just under $30 million of sales in 2025, so those sales are not recurring in 2026. Further, the Leicester, UK facility that Tom referenced earlier generated around $15 million sales in 2025, so if the facility is closed in the first half of 2026, that will only be a partial year of sales this year. Foreign exchange will be a headwind in 2026 compared to 2025 due to the weaker dollar. We are not guiding to an expected FX impact due to the uncertainty of future rates, but as a reference, our average euro/dollar rate in 2025 was 1.13. FX had an approximately 10 basis point unfavorable year-over-year impact to operating margin in 2025.
In terms of comparing 2026 sales guidance to our actual 2025 sales, recall that the divested industrial facility in Austria generated just under $30 million of sales in 2025, so those sales are not recurring in 2026. Further, the Leicester, UK facility that Tom referenced earlier generated around $15 million sales in 2025, so if the facility is closed in the first half of 2026, that will only be a partial year of sales this year.
Speaker #2: Further, the Lester UK facility that Tom referenced earlier generated around $15 million sales, in 2025, so if the facility is closed in the first half of 2026, that will only be a partial year of sales, this year.
Foreign exchange will be a headwind in 2026 compared to 2025 due to the weaker dollar. We are not guiding to an expected FX impact due to the uncertainty of future rates, but as a reference, our average euro/dollar rate in 2025 was 1.13. FX had an approximately 10 basis point unfavorable year-over-year impact to operating margin in 2025.
Speaker #2: Foreign exchange will be a headwind in 2026, compared to 2025, due to the weaker dollar. We are not guiding to an expected FX impact due to the uncertainty of future rates, but as a reference, our average euro/dollar rate in 2025 was 1.13.
Speaker #2: FX had an approximately 10 basis point unfavorable year-over-year operating impact to operating margin in 2025. In 2024, the average euro/dollar rate was 1.08, and FX was a benefit of approximately 40 basis points year-over-year.
Operator: In 2024, the average euro/dollar rate was 1.08, and FX was a benefit of approximately 40 basis points year-over-year. Cash conversion should exceed 100% for a period of time as capital expenditures remain subdued. Inventory days on hand should continue to trend lower during 2026 as we grow into our inventory levels, while even though inventory may grow modestly on a dollar basis, sales are expected to grow faster, leading to a reduction in days on hand. And then three comments regarding seasonality. Operating expenses are typically elevated in Q1 on stock-based compensation. Q3 sales are seasonally soft due to summer holidays, particularly impacting European sales, and the business typically uses cash in the first quarter of the year, with the strongest cash generation typically in the second half of the year.
In 2024, the average euro/dollar rate was 1.08, and FX was a benefit of approximately 40 basis points year-over-year. Cash conversion should exceed 100% for a period of time as capital expenditures remain subdued. Inventory days on hand should continue to trend lower during 2026 as we grow into our inventory levels, while even though inventory may grow modestly on a dollar basis, sales are expected to grow faster, leading to a reduction in days on hand.
Speaker #2: Cash conversion should exceed 100% for a period of time, as capital expenditures remain subdued. Inventory days on hand should continue to trend lower during 2026, as we grow into our inventory levels.
Speaker #2: And while, even though inventory may grow modestly on a dollar basis, sales are expected to grow faster, leading to a reduction in days on hand.
Then three comments regarding seasonality. Operating expenses are typically elevated in Q1 on stock-based compensation. Q3 sales are seasonally soft due to summer holidays, particularly impacting European sales, and the business typically uses cash in the first quarter of the year, with the strongest cash generation typically in the second half of the year.
Speaker #2: And then three comments regarding seasonality. Operating expenses are typically elevated in the first quarter on stock-based compensation, third quarter sales are seasonally soft due to summer holidays, particularly impacting European sales, and the business typically uses cash in the first quarter of the year with the strongest cash generation typically in the second half of the year.
Speaker #2: Repayment of the revolver will be a priority during the year, and consistent with Tom's comment regarding our focus on deleveraging in 2026. As a result, interest expense should decrease as the year progresses, as cash is generated and used to pay the revolver.
Operator: Repayment of the revolver will be a priority during the year and consistent with Tom's comment regarding our focus on deleveraging in 2026. As a result, interest expense should decrease as the year progresses as cash is generated and used to pay the revolver. Depending on the timing of cash receipts and market rates, interest expense for 2026 is expected to be in the range of $50 to $55 million. And lastly, we are projecting an effective tax rate of 20% for our EPS range. And with that, let me turn the call back to Tom. Thanks, Mike. Before we move to Q&A, I want to take a moment to express our deep appreciation for Jeff Campbell's leadership on Hexcel's board of directors.
Repayment of the revolver will be a priority during the year and consistent with Tom's comment regarding our focus on deleveraging in 2026. As a result, interest expense should decrease as the year progresses as cash is generated and used to pay the revolver.
Depending on the timing of cash receipts and market rates, interest expense for 2026 is expected to be in the range of $50 to $55 million. Lastly, we are projecting an effective tax rate of 20% for our EPS range. With that, let me turn the call back to Tom.
Speaker #2: Depending on the timing of cash receipts and market rates, interest expense for 2026 is expected to be in the range of 50 to 55 million.
Speaker #2: And lastly, we are projecting an effective tax rate of 20% for our EPS range. And with that, let me turn the call back to Tom.
Tom Gentile: Thanks, Mike. Before we move to Q&A, I want to take a moment to express our deep appreciation for Jeff Campbell's leadership on Hexcel's board of directors. Jeff recently announced that after almost 23 years of service on the Hexcel board, the last 7 as our lead director, he will not stand for reelection at our next annual meeting.
Speaker #2: Thanks, Mike. Before we move to Q&A, I want to take a moment to express our deep appreciation for Jeff Campbell's leadership on HEXCEL's Board of Directors.
Speaker #2: Jeff recently announced that after almost 23 years of service on the HEXCEL board, the last seven as our lead director, he will not stand for reelection at our next annual meeting.
Operator: Jeff recently announced that after almost 23 years of service on the Hexcel board, the last 7 as our lead director, he will not stand for reelection at our next annual meeting. Jeff has been an invaluable contributor to our governance and strategy for more than 2 decades, and we are grateful for his commitment and the impact he has made on Hexcel. Looking ahead, Hexcel enters 2026 with strong momentum. Positive order trends we saw late in 2025, combined with the catalyst enabling increased commercial aircraft production and the opportunities we have in defense and space, position us well for the future. We are excited about the path ahead and confident in Hexcel's ability to deliver value for our customers and shareholders. With that, Ellie, we are ready to take questions. We are now opening the floor for question-and-answer session.
Jeff has been an invaluable contributor to our governance and strategy for more than 2 decades, and we are grateful for his commitment and the impact he has made on Hexcel. Looking ahead, Hexcel enters 2026 with strong momentum.
Speaker #2: Jeff has been an invaluable contributor to our governance and strategy for more than two decades, and we are grateful for his commitment and the impact he has made on HEXCEL.
Speaker #2: Looking ahead, Hexcel enters 2026 with strong momentum. Positive order trends we saw late in 2025, combined with the catalyst enabling increased commercial aircraft production, and the opportunities we have in defense and space, position us well for the future.
Positive order trends we saw late in 2025, combined with the catalyst enabling increased commercial aircraft production and the opportunities we have in defense and space, position us well for the future. We are excited about the path ahead and confident in Hexcel's ability to deliver value for our customers and shareholders. With that, Ellie, we are ready to take questions.
Speaker #2: We are excited about the path ahead and confident in HEXCEL's ability to deliver value for our customers and shareholders. With that, Ellie, we are ready to take questions.
Moderator: We are now opening the floor for question-and-answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. Please limit your questions to one question and one follow-up. Thank you. I'd now like to call Ken Herbert for our first question from RBC Capital Markets. Your line is now open.
Speaker #3: We are now opening the floor for question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad.
Operator: If you'd like to ask a question, please press star followed by one on your telephone keypad. Please limit your questions to one question and one follow-up. Thank you. I'd now like to call Ken Herbert for our first question from RBC Capital Markets. Your line is now open. Yes, hi. Good morning. Thanks for the question. Maybe, Tom, just to start with sort of the midpoint of the up 8% on revenues in the 2026 guide, can you provide any more detail on how we should think about commercial aerospace within that growth and specifically what the underlying assumptions are associated with the A350? Right. Right. And so the 8% is a mix of, of course, our commercial and then the defense space and other.
Speaker #3: Please limit your questions to one question and one follow-up. Thank you. I'd now like to call Ken Herbert for our first question from RBC Capital Markets.
Speaker #3: Your line is now open.
Speaker #4: Yes. Hi. Good morning. Thanks for the question. Maybe Tom, just to start with the sort of the midpoint of the up 8% in revenues in the 26 guide, can you provide any more detail on how we should think about commercial aerospace within that growth and specifically what the underlying assumptions are associated with the A350?
Ken Herbert: Good morning. Thanks for the question. Maybe, Tom, just to start with sort of the midpoint of the up 8% on revenues in the 2026 guide, can you provide any more detail on how we should think about commercial aerospace within that growth and specifically what the underlying assumptions are associated with the A350? Right.
Speaker #5: Right. Right. And so the 8% is a mix of, of course, our commercial and then the defense space and other. Defense space and other is going to be diluted because as Mike explained, we aren't going to have the $30 million from the Austrian business and also probably about 8 million or so from that Lester UK business that I mentioned.
Tom Gentile: Right. The 8% is a mix of, of course, our commercial and then the defense space and other. Defense, space, and other is going to be diluted because, as Mike explained, we aren't going to have the $30 million from the Austrian business and also probably about $8 million or so from that Leicester, UK business that I mentioned.
Operator: Defense, space, and other is going to be diluted because, as Mike explained, we aren't going to have the $30 million from the Austrian business and also probably about $8 million or so from that Leicester, UK business that I mentioned. So that gets us to the 8%. For commercial aerospace by itself, I would describe the growth rate as low to mid double digits for next year. So we are seeing an increase. And the assumptions underlying that, because we right now are very aligned to the original equipment, commercial aerospace build rates for the OEM, Boeing, and Airbus in particular, and primarily the A350 is our biggest program where we have a shipset of $4.5 to $5 million. That's a big driver. As I said in the past, we're assuming about 80 units delivered and produced that we're going to deliver to Airbus in 2026.
That gets us to the 8%. For commercial aerospace by itself, I would describe the growth rate as low to mid double digits for next year. So we are seeing an increase. And the assumptions underlying that, because we right now are very aligned to the original equipment, commercial aerospace build rates for the OEM, Boeing, and Airbus in particular, and primarily the A350 is our biggest program where we have a shipset of $4.5 to $5 million.
Speaker #5: So that gets us to the 8%. For commercial aerospace by itself, I would describe the growth rate as low to mid double digits, for next year.
Speaker #5: So we are seeing an increase. And the assumptions underlying that, because we right now are very aligned to the original equipment, commercial aerospace build rates, or the OEM Boeing and Airbus in particular, and primarily the A350 is our biggest program where we have a ship set of 4.5 to 5 million dollars.
Speaker #5: That's a big driver. As I said in the past, we're assuming about 80 units delivered and produced that we're going to deliver to Airbus in 2026.
That's a big driver. As I said in the past, we're assuming about 80 units delivered and produced that we're going to deliver to Airbus in 2026. That's up from the 57 that they delivered in 2025. So it's a big leap. But what we see is we do a bottom-up demand forecast where we contact all 35 of the locations that receive material, and the 80 is a pretty good representation of what we think from the bottom up as well as the top-down analysis.
Speaker #5: That's up from the 57 that they delivered in 2025. So it's a big leap, but what we see is we do a bottom-up demand forecast where we contact all 35 of the locations that receive material and the 80 is a pretty good representation of what we think from the bottoms up as well as the top-down analysis.
Operator: That's up from the 57 that they delivered in 2025. So it's a big leap. But what we see is we do a bottom-up demand forecast where we contact all 35 of the locations that receive material, and the 80 is a pretty good representation of what we think from the bottom up as well as the top-down analysis. Now, I also want to remind you that we're a material provider, so we're typically four to six months ahead of the OEM in terms of what our assumptions are because we're looking that far ahead in terms of the material. So really, our forecast is kind of a mix between the forecast for 2026 and 2027 combined. But for the A350, the underlying assumption in our plan is about 80.
Now, I also want to remind you that we're a material provider, so we're typically four to six months ahead of the OEM in terms of what our assumptions are because we're looking that far ahead in terms of the material. So really, our forecast is kind of a mix between the forecast for 2026 and 2027 combined. But for the A350, the underlying assumption in our plan is about 80.
Speaker #5: Now, I also want to remind you that we're a material provider, so we're typically four to six months ahead of the OEM in terms of what our assumptions are, because we're looking that far ahead in terms of the material.
Speaker #5: So it's really our forecast is kind of a mix between the forecast for '26 and '27 combined. But for the A350, the underlying assumption in our plan is about 80.
Speaker #5: Now, just to carry on, for the A320, as we've said before, our shipset value is between $200,000 and $500,000. On the A320, it's more toward the upper end of that range.
Operator: Now, just to carry on, for the A320, as we've said before, our shipset value is between $200,000 and $500,000. On the A320, it's more toward the upper end of that range. We're assuming low to mid-700s. And again, remember that we're six months ahead of Airbus, so our number is going to be a little bit higher than what they're communicating or estimating. On the 737 MAX, we're targeting mid-400s, which we are going to monitor closely. We saw a lot of destocking in 2025. They're getting through that, but there's probably still some lingering destocking on the 737 program, so we'll watch that. But we're expecting mid-400s. And on the 787, consistent with Boeing, what they said on their call, 90 to 100 is what we're assuming in our plan. So for the four major programs, those are our assumptions.
Now, just to carry on, for the A320, as we've said before, our shipset value is between $200,000 and $500,000. On the A320, it's more toward the upper end of that range. We're assuming low to mid-700s. Again, remember that we're six months ahead of Airbus, so our number is going to be a little bit higher than what they're communicating or estimating.
Speaker #5: We're assuming low to mid-700s. And again, remember that we're six months ahead of Airbus, so our number is going to be a little bit higher than what they're communicating or estimating.
On the 737 MAX, we're targeting mid-400s, which we are going to monitor closely. We saw a lot of destocking in 2025. They're getting through that, but there's probably still some lingering destocking on the 737 program, so we'll watch that but we're expecting mid-400s. AOn the 787, consistent with Boeing, what they said on their call, 90 to 100 is what we're assuming in our plan.
Speaker #5: On the MAX, we're targeting mid 400s. We are going to monitor closely. We saw a lot of destocking in 2025. They're getting through that, but there's probably still some lingering destocking on the 37 program.
Speaker #5: So we'll watch that. But we're expecting mid 400s. And on the 787, consistent with Boeing, what they said on their call, 90 to 100 is what we're assuming in our plan.
So for the four major programs, those are our assumptions. As I said, we're a little bit ahead of the OEMs because we're a material provider, but we've also tried to be conservative in making those assumptions as we build the plan because we know it's been tough with the supply chain.
Speaker #5: For the four major programs, those are our SO assumptions. As I said, we're a little bit ahead of the OEMs because we're a material provider.
Operator: As I said, we're a little bit ahead of the OEMs because we're a material provider, but we've also tried to be conservative in making those assumptions as we build the plan because we know it's been tough with the supply chain. But as I mentioned in my prepared remarks, there are four catalysts across each of those major programs that give us confidence that these build rates can now start to ramp up and that they will hit their peak production rates in the next few years. That's great. I appreciate all the detail, Tom. Just one quick follow-up on the A350. You'd called out in prior quarters that you were seeing purchase order activity and customer activity that supported these rates and your expectations in 2026.
Speaker #5: But we've also tried to be conservative in making those assumptions as we build the plan because we know it's been tough with the supply chain.
Speaker #5: But as I mentioned in my prepared remarks, there are four catalysts across each of those major programs that give us confidence that these build rates can now start to ramp up and that they will hit their peak production rates in the next few years.
As I mentioned in my prepared remarks, there are four catalysts across each of those major programs that give us confidence that these build rates can now start to ramp up and that they will hit their peak production rates in the next few years.
Ken Herbert: That's great. I appreciate all the detail, Tom. Just one quick follow-up on the A350. You'd called out in prior quarters that you were seeing purchase order activity and customer activity that supported these rates and your expectations in 2026.
Speaker #4: That's great. I appreciate all the detail, Tom. Just one quick follow-up on the A350. You'd called out in prior quarters that you were seeing purchase order activity and customer activity that supported these rates and your expectations in '26.
Speaker #4: Can you just comment, did that continue through the end of the fourth quarter? And what have you seen so far this year specifically on that program in terms of just customer purchasing activity or pull?
Operator: Can you just comment: did that continue through the end of the Q4, and what have you seen so far this year specifically on that program in terms of just customer purchasing activity or pull? Right. The purchase orders are very strong this year in contrast to last year. And so we've got good visibility on the purchase orders, firm purchase orders all the way out through May, so five months. And so that's good. But it was this bottoms-up demand management profile that I mentioned where we, with Airbus, go out to all 35 internal Airbus plants as well as external third-party plants, and we basically poll them on what their orders are going to be. And so that bottoms-up analysis is also giving us confidence in that 80 number that we gave.
Can you just comment: did that continue through the end of the Q4, and what have you seen so far this year specifically on that program in terms of just customer purchasing activity or pull?
Tom Gentile: Right. The purchase orders are very strong this year in contrast to last year. And so we've got good visibility on the purchase orders, firm purchase orders all the way out through May, so five months and so that's good.
Speaker #5: Right. The purchase orders are very strong this year, in contrast to last year. And so we've got good visibility on the purchase orders—firm purchase orders—all the way out through May, so five months.
Speaker #5: And so that's good. But it was this bottoms up demand management profile that I mentioned where we with Airbus go out to all 35 internal Airbus plants as well as external third-party plants and we basically pull them on what their orders are going to be.
It was this bottoms-up demand management profile that I mentioned where we, with Airbus, go out to all 35 internal Airbus plants as well as external third-party plants, and we basically poll them on what their orders are going to be. And so that bottoms-up analysis is also giving us confidence in that 80 number that we gave.
Speaker #5: And so that bottoms up analysis is also giving us confidence in that 80 number that we gave. In fact, we're confident enough that we've had a number of carbon fiber lines mothballed over the past few years because production has been lower.
Operator: In fact, we're confident enough that we've had a number of carbon fiber lines mothballed over the past few years because production has been lower. We actually brought one online earlier than expected just so that we're prepared for the increase and even if it goes above that. So just to give you a little bit of color on how we built that plan and the confidence we have in the assumption. Great. Thanks a lot, Tom. Thanks, Ken. Your next question comes from the line of Gautam Khanna of TD Cowen. Your line is now open. Hey, I apologize if I missed this, but I was wondering in the Q4 composites segment if you could quantify the out-of-period benefits or the one-timers.
In fact, we're confident enough that we've had a number of carbon fiber lines mothballed over the past few years because production has been lower. We actually brought one online earlier than expected just so that we're prepared for the increase and even if it goes above that. Just to give you a little bit of color on how we built that plan and the confidence we have in the assumption.
Speaker #5: We actually brought one online earlier than expected just so that we're prepared for the increase. And even if it goes above that. So just to give you a little bit of color, on how we built that plan and the confidence we have in the assumption.
Ken Herbert: Great. Thanks a lot, Tom.
Speaker #4: Great.
Speaker #4: Thanks a lot, Tom. Thanks,
Tom Gentile: Thanks, Ken.
Moderator: Your next question comes from the line of Gautam Khanna of TD Cowen. Your line is now open.
Speaker #3: Your next question comes from Ken. the line of GOTOM, Kana of TD Cohen. Your line is now
Gautam Khanna: Hey, I apologize if I missed this, but I was wondering in the Q4 composites segment if you could quantify the out-of-period benefits or the one-timers. Then just one of the things we noticed last year is you had pretty high decremental margins, but the implied incrementals look to be kind of like mid-30s. Wondering what would be the case for upside and why shouldn't we think that there could be just given you got the leverage coming back?
Speaker #6: Hey, I apologize if I missed this, but I was wondering in the fourth quarter, composite segment, if you could quantify the audit period benefits or the one-timers.
Speaker #6: And then just one of the things we noticed last year is you had pretty high decremental margins but the implied incrementals look to be kind of like 30, mid 30s.
Operator: And then just one of the things we noticed last year is you had pretty high decremental margins, but the implied incrementals look to be kind of like mid-30s. Wondering what would be the case for upside and why shouldn't we think that there could be just given you got the leverage coming back? Okay. Let me take the incremental margin first, and I'll turn it over to Mike. You're right on the incremental margins. It's mid-30s is what we're seeing based on the current plan. And the upside is really it gets down to commercial build rates. If we see higher production rates on the A350, the A320, the 737, the 787, then we'll see upside to those incremental margins. The key point about Hexcel is we are all about operating leverage. As the production rates go up, we're going to get operating leverage.
Speaker #6: Wondering if what would be the case for upside and why shouldn't we think that there could be just given you get the leverage coming back?
Speaker #5: Okay, let me take the incremental margin first, and then I'll turn it over to Mike. You're right on the incremental margins—it's mid-30s, is what we're seeing based on the current plan.
Tom Gentile: Okay. Let me take the incremental margin first, and I'll turn it over to Mike. You're right on the incremental margins. It's mid-30s is what we're seeing based on the current plan. And the upside is really it gets down to commercial build rates.
Speaker #5: And the upside is really it gets down to commercial build rates. If we see higher production rates on the A350, the A320, the 37, the 787, then we'll see upside to those incremental margins.
If we see higher production rates on the A350, the A320, the 737, the 787, then we'll see upside to those incremental margins. The key point about Hexcel is we are all about operating leverage. As the production rates go up, we're going to get operating leverage.
Speaker #5: The key point about HEXCEL is we are all about operating leverage. As the production rates go up, we're going to get operating leverage. I mentioned in my remarks, production is only 80% recovered, 87% recovered overall and less on wide body.
Operator: As I mentioned in my remarks, production is only 80% recovered, 87% recovered overall, and less on wide bodies. As the production gets back to pre-pandemic levels, that generates a lot of operating leverage for us, which will improve margins and our incremental margins as we go forward. Now let Mike answer the question about the. Yeah. So the adjusted operating margin in the Q4 for composite materials, that was 20.5% was the margin. We can follow up if you need more specifics about what numbers plugged there to get to that margin. But that is the adjusted one. The table, as you know, that's a GAAP number. Thank you. Thanks, Tom. My next question comes from the line of Gavin Parsons of UBS. Your line is now open. Thank you. Good morning. Good morning. I'd love to just go back to the incremental conversation.
As I mentioned in my remarks, production is only 80% recovered, 87% recovered overall, and less on wide bodies. As the production gets back to pre-pandemic levels, that generates a lot of operating leverage for us, which will improve margins and our incremental margins as we go forward. Now let Mike answer the question about the.
Speaker #5: As the production gets back to pre-pandemic levels, that generates a lot of operating leverage for us, which will improve margins and our incremental margins as we go forward.
Speaker #5: Now let Mike answer the question about the.
Speaker #7: Yeah. So adjusted operating margin in the fourth quarter for composite materials, that was 20.5%. Was the margin. We can follow up if you need more specifics about what numbers plug there to get to that margin.
Mike Lenz: Yeah. So the adjusted operating margin in the Q4 for composite materials, that was 20.5% was the margin. We can follow up if you need more specifics about what numbers plugged there to get to that margin, but that is the adjusted one. The table, as you know, that's a GAAP number.
Speaker #7: But that is the adjusted one. The table, as you know, that's a gap number.
Gautam Khanna: Thank you.
Speaker #6: Thank you.
Tom Gentile: Thanks, Ken.
Speaker #3: Your Thanks, Tom. next question comes from the line of Gavin Parsons. Have you BS your line is now
Moderator: Your next question comes from the line of Gavin Parsons of UBS. Your line is now open.
Speaker #3: open?
Gavin Parsons: Thank you. Good morning.
Speaker #8: Thank
Speaker #8: Good morning. I'd
Tom Gentile: Good morning.
Speaker #5: Good you.
Speaker #5: morning.
Speaker #8: love to just go back to the incremental conversation. Could we have a little bit more color around maybe fixed versus variable costs? Just kind of aligning your hiring expenses, your utilization to your revenue.
Gavin Parsons: I'd love to just go back to the incremental conversation. Could we have a little bit more color around maybe fixed versus variable costs, just kind of aligning your hiring expenses, your utilization to your revenue? Just how do we think about some of the pieces underlying incrementals?
Operator: Could we have a little bit more color around maybe fixed versus variable costs, just kind of aligning your hiring expenses, your utilization to your revenue? Just how do we think about some of the pieces underlying incrementals? Right. Well, we're managing cost overall in the corporate area. You saw G&A was lower than last year. So we held the line, a lot of belt tightening on things like professional fees, headcount, and T&L and things like that. The other thing that we've done is, as we said, in terms of cost, we fixed costs in the factories; now in some of the labor, the direct labor is variable cost, but we've had a hiring freeze on. We also let attrition because the volume wasn't there. We didn't need all the people, so we did let attrition go down. We had a couple of small staff reductions.
Speaker #8: Just how do we think about some of the pieces underlying
Speaker #8: incrementals? Right.
Tom Gentile: Right. Well, we're managing cost overall in the corporate area. You saw G&A was lower than last year. So we held the line, a lot of belt tightening on things like professional fees, headcount, and T&L and things like that.
Speaker #5: Well, we're managing cost overall in the corporate area. You saw G&A was lower than last year. So we held the line tight. A lot of bell tightening on things like professional fees and headcount and T&L and things like that.
The other thing that we've done is, as we said, in terms of cost, we fixed costs in the factories; now in some of the labor, the direct labor is variable cost, but we've had a hiring freeze on. We also let attrition because the volume wasn't there. We didn't need all the people, so we did let attrition go down. We had a couple of small staff reductions.
Speaker #5: The other thing that we've done is, as we said, in terms of cost—we fixed cost in the factories—is we've now, in some of the labor, the direct labor is variable cost, but we've had a hiring freeze on.
Speaker #5: We also let attrition, because the volume wasn't there, we didn't need all the people. So we did let attrition go down. We had a couple of small staff reductions.
Speaker #5: And so we ended the year with 330 headcount below where we ended 2024. And it was way below our original plan for 2025. And we're keeping that low level of headcount going into '26.
Operator: And so we ended the year with 330 headcount below where we ended 2024. And it was way below our original plan for 2025. And we're keeping that low level of headcount going into 2026. We're only going to start to hire as we see evidence that those rates are coming up. We're starting to see it on the A350, which is why we started up that new carbon fiber line a little bit early. But other than that, we're going to wait until mid-year before we start any increased hiring. And that's how we're going to manage some of the fixed and variable costs as we go into 2026. And then on A350, will you go up at the same rate as Airbus? Will you be leading them on that typical 4- to 6-month timeframe? How do we think about the timeframe?
And so we ended the year with 330 headcount below where we ended 2024. And it was way below our original plan for 2025. And we're keeping that low level of headcount going into 2026. We're only going to start to hire as we see evidence that those rates are coming up.
Speaker #5: We're only going to start to hire as we see evidence that those rates are coming up. We're starting to see it on the A350, which is why we started up that new carbon fiber line a little bit early.
We're starting to see it on the A350, which is why we started up that new carbon fiber line a little bit early. But other than that, we're going to wait until mid-year before we start any increased hiring and that's how we're going to manage some of the fixed and variable costs as we go into 2026.
Speaker #5: But other than that, we're going to wait until mid-year before we start any increased hiring. And that's how we're going to manage some of the fixed and variable cost as we go into 2026.
Gavin Parsons: Then on A350, will you go up at the same rate as Airbus? Will you be leading them on that typical 4- to 6-month timeframe? How do we think about the timeframe?
Speaker #8: And then on A350, will you go up at the same rate as Airbus? Will you be leading them on that typical four to six month timeframe?
Speaker #8: How do we think about the
Speaker #8: timeframe? We're, as I
Operator: We're, as I said, a little bit ahead of them, but we're more in lockstep. There was a lot of destocking last year. But as we get into fourth quarter and we got into December in particular, we saw that kind of normalizing and shipping to them at close to their delivery rate. So we expect that to continue throughout 2026. And we'll go up with them. We'll be a little bit ahead, as I said. So our rates are generally a little bit ahead of them. But as I said, we're protecting more on the upside. And that's why we started up that extra carbon fiber line because the initial bottoms-up forecast is probably a little bit higher than our underlying assumptions. And we want to be ready. We just don't want to miss.
Tom Gentile: We're, as I said, a little bit ahead of them, but we're more in lockstep. There was a lot of destocking last year. But as we get into fourth quarter and we got into December in particular, we saw that kind of normalizing and shipping to them at close to their delivery rate.
Speaker #5: said, a little bit ahead of them, but we're more in lockstep. There was a lot of destocking last year. But as we get into fourth quarter and we got into December in particular, we saw that kind of normalizing.
Speaker #5: And shipping to them at close to their delivery rate. So we expect that to continue throughout 2026. And we'll go up with them. We'll be a little bit ahead, as I said.
So we expect that to continue throughout 2026. And we'll go up with them. We'll be a little bit ahead, as I said. So our rates are generally a little bit ahead of them. But as I said, we're protecting more on the upside. That's why we started up that extra carbon fiber line because the initial bottoms-up forecast is probably a little bit higher than our underlying assumptions. And we want to be ready. We just don't want to miss.
Speaker #5: So our rates are generally a little bit ahead of them. But as I said, we're protecting more on the upside, and that's why we started up that extra carbon fiber line—because the initial bottoms-up forecast is probably a little bit higher than our underlying assumptions.
Speaker #5: And we want to be ready. We just don't want to miss. As you know, there have been a lot of companies called out for being behind on production rates for Boeing and Airbus.
Operator: As you know, there have been a lot of companies called out for being behind on production rates for Boeing and Airbus. We don't want to be one of those. We haven't been. We've always been a very good supplier in terms of on-time delivery and quality, and we intend to remain that way. Thanks, Tom. Appreciate it. You're welcome. Your next question comes from the line of John McNulty of BMO Capital Markets. Your line is now open. Yeah. Thanks for taking my question. Maybe just flushing out a little bit more about how to think about incremental margins going forward. It looks like based on the revenue outlook that you've laid out, you're kind of calling for somewhere around a 30% incremental margin, which is definitely kind of lower than what we saw on Q4.
As you know, there have been a lot of companies called out for being behind on production rates for Boeing and Airbus. We don't want to be one of those. We haven't been. We've always been a very good supplier in terms of on-time delivery and quality, and we intend to remain that way.
Speaker #5: We don't want to be one of those. We haven't been. We've always been a very good supplier in terms of on-time delivery and quality, and we intend to remain that.
Speaker #5: way. Thanks,
Gavin Parsons: Thanks, Tom. Appreciate it.
Speaker #8: Tom. Appreciate it.
Tom Gentile: You're welcome.
Speaker #5: You're welcome.
Speaker #3: Your next question comes from the line of John McNulty of BMO Capital Markets. Your line is now open.
Moderator: Your next question comes from the line of John McNulty of BMO Capital Markets. Your line is now open.
John McNulty: Yeah. Thanks for taking my question. Maybe just flushing out a little bit more about how to think about incremental margins going forward. It looks like based on the revenue outlook that you've laid out, you're kind of calling for somewhere around a 30% incremental margin, which is definitely kind of lower than what we saw on Q4.
Speaker #6: Yeah. Thanks for taking my question. Maybe just flushing out a little bit more about how to think about incremental margins going forward. It looks like based on the revenue outlook that you've laid out, you're kind of calling for somewhere around a 30% incremental margin, which is definitely kind of lower than what we saw in 4Q.
Speaker #6: And I would imagine just given that you are really feeling some demand pull and you've got kind of the assets and the people in place, I would think it should be maybe a little bit north of that.
Operator: I would imagine just given that you are really feeling some demand pull and you've got kind of the assets and the people in place, I would think it should be maybe a little bit north of that. So I guess how should we be thinking about what's embedded in the guide at this point? Right. Well, I guess if you took the midpoint and you add it back, it would be in kind of the low 30s. We think it could be a little bit better. That's why I say mid 30s. And for the reasons that I mentioned, for us, it's about operating leverage. We've been so under capacity the last 6 years, really since the pandemic began, that we're not able to basically allocate all of the fixed costs and depreciation from the assets that we put in place to go up in rate.
I would imagine just given that you are really feeling some demand pull and you've got kind of the assets and the people in place, I would think it should be maybe a little bit north of that. So I guess how should we be thinking about what's embedded in the guide at this point?
Speaker #6: So I guess how should we be thinking about what's embedded in the guide at this
Speaker #6: point? Right.
Tom Gentile: Right. Well, I guess if you took the midpoint and you add it back, it would be in kind of the low 30s. We think it could be a little bit better. That's why I say mid 30s. And for the reasons that I mentioned, for us, it's about operating leverage.
Speaker #5: Well, I guess if you took the midpoint and you add it back, it would be in kind of the low 30s. We think it could be a little bit better.
Speaker #5: That's why I say mid 30s. But for the reasons that I mentioned, for us, it's about operating leverage. We've been so under capacity the last six years really since the pandemic began that we're not able to basically allocate all of the fixed costs and depreciation from the assets that we put in place to go up in rate.
We've been so under capacity the last 6 years, really since the pandemic began, that we're not able to basically allocate all of the fixed costs and depreciation from the assets that we put in place to go up in rate.
Speaker #5: As we start being able to absorb all of that depreciation, because the volume's going up, it's going to lead to operating leverage, which will drive margins faster than revenue growth.
Operator: As we start being able to absorb all of that depreciation because the volume's going up, it's going to lead to operating leverage, which will drive margins faster than revenue growth. And that will create the positive incremental margins. So I think the mid guides, I would say, are probably low 30s. But I said I'm comfortable with saying mid 30s on incremental margins for 2026. Got it. Okay. Fair enough. And then just as a follow-up, a quick question. So you just got finished with a big ASR, so I understand you've already put a lot of capital behind the stock. I guess as we look to 2026, it sounds like debt reduction is kind of the first priority, just getting leverage back to where you want it to be, which seems like that should be pretty quick.
As we start being able to absorb all of that depreciation because the volume's going up, it's going to lead to operating leverage, which will drive margins faster than revenue growth and that will create the positive incremental margins. So I think the mid guides, I would say, are probably low 30s. But I said I'm comfortable with saying mid 30s on incremental margins for 2026.
Speaker #5: And that will create the positive incremental margins. So I think the mid guide, I would say, are probably low to mid-30s. But as I said, I'm comfortable with saying mid-30s on incremental margins for '26.
John McNulty: Got it. Okay. Fair enough. Then just as a follow-up, a quick question. So you just got finished with a big ASR, so I understand you've already put a lot of capital behind the stock. I guess as we look to 2026, it sounds like debt reduction is kind of the first priority, just getting leverage back to where you want it to be, which seems like that should be pretty quick. Should we expect further cash going into buybacks as we look into 2026? How should we be thinking about that?
Speaker #6: Got it. Okay. Fair enough. And then just as a follow-up, a quick question. So you just got finished with a big ASR. So understand you've already put a lot of capital behind the stock.
Speaker #6: I guess as we look to 2026, it sounds like debt reduction is kind of the first priority, just getting leverage back to where you want it to be, which seems like that should be pretty quick.
Speaker #6: Should we expect further cash going into buybacks as we look into 2026? How should we be thinking about that?
Operator: Should we expect further cash going into buybacks as we look into 2026? How should we be thinking about that? Well, I'd just go back to last year when we did the ASR. We did a $600 million share purchase reauthorization. And so we had $134 on a previous authorization. We added $600. We took out $350. So we still have $384 left. We want to get back down to our target leverage ratio. But after that, we will certainly look at continued share repurchase. But the first goal is to get down, and we expect to be down to less than two by the end of the year. Got it. Thanks very much for the caller. Thank you. Your next question comes from the line of Scott Mikus of Melius Research. Your line is now open. Morning, Tom and Mike.
Speaker #5: Well, I'd just go back to last year when we did the ASR. We did a $600 million share purchase reauthorization. And so we had 134 on a previous authorization.
Tom Gentile: Well, I'd just go back to last year when we did the ASR. We did a $600 million share purchase reauthorization. And so we had $134 on a previous authorization. We added $600. We took out $350. So we still have $384 left. We want to get back down to our target leverage ratio. But after that, we will certainly look at continued share repurchase. The first goal is to get down, and we expect to be down to less than two by the end of the year.
Speaker #5: We added 600. We took out 350. So we still have 384 left. We want to get back down to our target leverage ratio. But after that, we will certainly look at continued share repurchase.
Speaker #5: But the first goal is to get down, and we expect to be down to less than 2 by the end of the year.
John McNulty: Got it. Thanks very much for the caller.
Speaker #6: Got it. Thanks very much for the
Speaker #6: Got it. Thanks very much for the caller. Thank
Speaker #6: Got it. Thanks very much for the caller. Thank
Tom Gentile: Thank you.
Moderator: Your next question comes from the line of Scott Mikus of Melius Research. Your line is now open.
Speaker #3: Your next you. question comes from the line of Scott Mikus of Melius Research. Your line is now open.
Scott Mikus: Morning, Tom and Mike. I just wanted to ask kind of on the incremental margins as well. Does the guidance range kind of contemplate any higher cost to de-mothball additional carbon fiber lines if Boeing and Airbus actually exceed the A350 and 787 production rate targets that you have baked into the guide?
Speaker #7: Good morning, Tom and Mike. I just wanted to ask, kind of on the incremental margins as well, does the guidance range contemplate any higher cost to de-mothball additional carbon fiber lines?
Operator: I just wanted to ask kind of on the incremental margins as well. Does the guidance range kind of contemplate any higher cost to de-mothball additional carbon fiber lines if Boeing and Airbus actually exceed the A350 and 787 production rate targets that you have baked into the guide? And then some of the other puts and takes, I mean, can you quantify the year-over-year tailwind to operating income from closing the Austrian and Leicester facilities? And is there an additional tailwind from the ERP implementation that you did in 2025 that won't repeat in 2026? Okay. Let me talk about the mothball costs. We've built in all the costs into the plan required as we bring new capacity online. So we don't expect any incremental. And taking those lines out is not that big of a deal. It's really about just going and hiring the people.
Speaker #7: If Boeing and Airbus actually exceed the A350 and 787 production rate targets, that you have baked into the guide? And then some of the other puts and takes.
Then some of the other puts and takes, I mean, can you quantify the year-over-year tailwind to operating income from closing the Austrian and Leicester facilities? Is there an additional tailwind from the ERP implementation that you did in 2025 that won't repeat in 2026?
Speaker #7: I mean, can you quantify the year-over-year tailwind to operating income from closing the Austrian and Leicester facilities? And is there an additional tailwind from the ERP implementation that you did in 2025 that won't repeat in '26?
Tom Gentile: Okay. Let me talk about the mothball costs. We've built in all the costs into the plan required as we bring new capacity online. So we don't expect any incremental. And taking those lines out is not that big of a deal. It's really about just going and hiring the people.
Speaker #5: Okay. Let me talk about the mothball costs. We've built in all the costs into the plan required as we bring new capacity online. So we don't expect any incremental.
Speaker #5: And taking those lines out is not that big of a deal. It's really about just going and hiring the those costs are all incorporated into people.
Speaker #5: So, our plan and our outlook. In terms of your second question, it was on the operating income to close all of the different assets.
Operator: So those costs are all incorporated into our plan and our outlook. In terms of your second question was on the operating income to close all of the different assets. Okay. That's all incorporated. On the ERP, let me just be clear. The ERP, there were some costs in 2025. There's some additional costs in 2026 as we implement it. It's just incorporated into our numbers. We're probably about halfway through the overall implementation. We expect to get most of it done in 2026, maybe a little bit in 2027. But it's not material in terms of our overall numbers, so we're not highlighting it. It's just incorporated into our SG&A. It's roughly flattish to think about it for the ERP, but we're rolling out a greater number in 2026 than we did in 2025. So as Tom said, we're pushing to get through that, but likely the early 2027.
So those costs are all incorporated into our plan and our outlook. In terms of your second question was on the operating income to close all of the different assets. Okay. That's all incorporated.
Speaker #5: Okay. That's all incorporated. On the ERP, let me just be clear. The ERP, there were some costs in '25. There's some additional costs in '26 as we implement it.
On the ERP, let me just be clear. The ERP, there were some costs in 2025. There's some additional costs in 2026 as we implement it. It's just incorporated into our numbers. We're probably about halfway through the overall implementation. We expect to get most of it done in 2026, maybe a little bit in 2027. But it's not material in terms of our overall numbers, so we're not highlighting it. It's just incorporated into our SG&A.
Speaker #5: It's just incorporated into our numbers. We're probably about halfway through the overall implementation. We expect to get most of it done in '26, maybe a little bit in '27.
Speaker #5: But it's not material in terms of our overall numbers. So we're not highlighting it. It's just incorporated into our SG&A.
Mike Lenz: It's roughly flattish to think about it for the ERP, but we're rolling out a greater number in 2026 than we did in 2025. So as Tom said, we're pushing to get through that, but likely the early 2027.
Speaker #6: If you think about it, for the ERP, what we're seeing is it's roughly flattish. If we're rolling out a greater number in '26 than we did in '25.
Speaker #6: So as Tom said, we're pushing to get through that, but likely the early '27.
Speaker #5: Yeah. But the overall focus is we are going to continue very strong discipline management of all of our costs so that we can continue to drive margins, which will obviously contribute to the incremental margin.
Operator: Yeah. But the overall focus is we are going to continue very strong discipline management of all of our costs so that we can continue to drive margins, which will obviously contribute to the incremental margins. Okay. Just to clarify, were the Austrian and Leicester facilities, were they EBIT negative in 2025? It was immaterial in terms of close to break-even, maybe even a little negative, but not material. And so as we've said, we closed those. They were basically non-core operations. And this was all part of streamlining the portfolio so that we can be more focused and productive as we go forward. And so both of those, plus closing the Belgian facility, and selling our Hartford facility, all contribute to that. It's about lowering costs and being more productive. We won't see the full impact of that. We'll see some of it this year.
Tom Gentile: Yeah. But the overall focus is we are going to continue very strong discipline management of all of our costs so that we can continue to drive margins, which will obviously contribute to the incremental margins.
Speaker #7: Okay. Just to clarify, were the Austrian and Leicester facilities, were they EBIT negative in 2025?
Scott Mikus: Okay. Just to clarify, were the Austrian and Leicester facilities, were they EBIT negative in 2025?
Speaker #5: It was immaterial. In terms of close to break-even, maybe even a little negative, but not material. And so, as we've said, we closed those.
Tom Gentile: It was immaterial in terms of close to break-even, maybe even a little negative, but not material. And so as we've said, we closed those. They were basically non-core operations and this was all part of streamlining the portfolio so that we can be more focused and productive as we go forward.
Speaker #5: They were basically non-core operations. And this was all part of streamlining the portfolio. So that we can be more focused and productive as we go forward.
Both of those, plus closing the Belgian facility, and selling our Hartford facility, all contribute to that. It's about lowering costs and being more productive. We won't see the full impact of that. We'll see some of it this year. We'll see all of it on a full year basis next year.
Speaker #5: And so both of those, plus closing the Belgian facility and selling our Hartford facility, all contribute to that. It's about lowering costs and being more productive.
Speaker #5: We won't see the full impact of that. We'll see some of it this year. We'll see all of it on a full-year basis next year.
Operator: We'll see all of it on a full year basis next year. Okay. Got it. Thank you. Thanks. Your next question comes from the line of Michael Ciarmoli of Truist Securities. Your line is now open. Hey, morning, guys. Thanks for taking the question. Tom, I think I've missed it. Did you guys give, in terms of the revenue guidance, did you give a breakdown or a split by the end market in terms of what we should expect this year between commercial aero and space and defense? And then just any update on sort of the price-cost equation? I know some of the main material inputs, notably acrylonitrile, some of those prices could be coming down. I know you've got the hedging strategy, but any general update there as well on how that may impact margins as we're kind of talking about this incremental margin? Right. Okay.
Speaker #7: Okay. Got it. Thank you.
Scott Mikus: Okay. Got it. Thank you.
Tom Gentile: Thanks.
Speaker #5: Thanks. Your next question comes
Moderator: Your next question comes from the line of Michael Ciarmoli of Truist Securities. Your line is now open.
Speaker #3: From the line of Michael Carmolley of Truist Securities, your line is now open.
Michael Ciarmoli: Morning, guys. Thanks for taking the question. Tom, I think I've missed it. Did you guys give, in terms of the revenue guidance, did you give a breakdown or a split by the end market in terms of what we should expect this year between commercial aero and space and defense?
Speaker #8: Hey, good morning, guys. Thanks for taking the question. Tom, I may have missed it. Did you guys give, in terms of the revenue guidance, did you give a breakdown or a split by end market in terms of what we should expect this year between Commercial Aero and Space and Defense?
Speaker #8: And then just any update on sort of the price-cost equation, I know some of the main material inputs, notably acrylic nitrile, some of those prices could be coming down.
Then just any update on sort of the price-cost equation? I know some of the main material inputs, notably acrylonitrile, some of those prices could be coming down. I know you've got the hedging strategy, but any general update there as well on how that may impact margins as we're kind of talking about this incremental margin?
Speaker #8: I know you've got the hedging strategy, but any general update there as well on how that may impact margins as we're kind of talking about this incremental margin?
Tom Gentile: Right. Okay. On revenue guidance for 2026, what I said is commercial will be low to mid double digits. Defense will be low to mid single digits growth. Defense on its own, defense and space on its own because the defense space and other is going to be flat to slightly negative because of the $30 million from the Austrian facility plus the $8 or 9 million or so from the Leicester facility.
Speaker #5: Right. Okay. So on revenue guidance for 2026, what I said is commercial will be low to mid-double digits. Defense will be low to mid-single digits growth.
Operator: So on revenue guidance for 2026, what I said is commercial will be low to mid double digits. Defense will be low to mid single digits growth. Defense on its own, defense and space on its own. Because the defense space and other is going to be flat to slightly negative because of the $30 million from the Austrian facility plus the $8 or 9 million or so from the Leicester facility. But defense by itself will be, say, low to mid double digits. And commercial will be low to mid double, excuse me. Defense is low to mid single digits. And commercial aerospace will be low to mid double digits growth for 2026. On the price-cost equation, AN, acrylonitrile, is the basic raw material that we use to make the carbon fiber. It's essentially a petroleum byproduct, but we hedge propylene.
Speaker #5: Defense on its own, defense and space on its own. Because the defense, space, and other is going to be flat to slightly negative because of the $30 million from the Austrian facility, plus the $8 or $9 million or so from the Leicester facility.
But defense by itself will be, say, low to mid double digits and commercial will be low to mid double, excuse me. Defense is low to mid single digits. And commercial aerospace will be low to mid double digits growth for 2026.
Speaker #5: But defense by itself will be, say, low- to mid-double digits. And commercial will be low to mid—excuse me, defense is low- to mid-single digits.
Speaker #5: And commercial aerospace will be low to mid-double digits growth for 2026. On the price-cost equation, and acrylic nitrile is the basic raw material that we use to make the carbon fiber.
On the price-cost equation, AN, acrylonitrile, is the basic raw material that we use to make the carbon fiber. It's essentially a petroleum byproduct, but we hedge propylene. So it's a fairly volatile price over the years. It is down right now, but we hedge it so we smooth it out over the years. So we don't expect variation on that because we have a very strong hedging program on that.
Speaker #5: It's essentially a petroleum byproduct, but we hedge propylene. And so, it's a fairly volatile price over the years. It is down right now, but we hedge it.
Operator: So it's a fairly volatile price over the years. It is down right now, but we hedge it so we smooth it out over the years. So we don't expect variation on that because we have a very strong hedging program on that. The other thing I will mention is that we talk about margins a lot. As production rates go up and as we get to the target peak production rates across all the programs for Boeing and Airbus, that's going to generate, as I said, $500 million of incremental revenue per year. Then on top of that, we have $200 million of increase in defense, regional jets, and business jets. The combination of all of that gives us a path back to 18% margins before the end of the decade. So we are always working on pricing as contracts come up.
Speaker #5: So we smooth it out over the years. So we don't expect variation on that because we have a very strong hedging program on that.
The other thing I will mention is that we talk about margins a lot. As production rates go up and as we get to the target peak production rates across all the programs for Boeing and Airbus, that's going to generate, as I said, $500 million of incremental revenue per year.
Speaker #5: The other thing I will mention is that we talk about margins a lot. As production rates go up, and as we get to the target peak production rates across all the programs for Boeing and Airbus, that's going to generate, as I said, $500 million of incremental revenue per year.
Then on top of that, we have $200 million of increase in defense, regional jets, and business jets. The combination of all of that gives us a path back to 18% margins before the end of the decade. So we are always working on pricing as contracts come up. We'll continue to do that.
Speaker #5: Then on top of that, we have a couple of hundred million dollars of increase in defense, and regional jets, and business jets. The combination of all of that gives us a path back to 18% margins before the end of the decade.
Speaker #5: So we are always working on pricing as contracts come up. And so we'll continue to do that. But along with the operating leverage and the productivity initiative, we do have a path back to the 18% margins before the end of the decade as the OEMs achieve their peak production rates across all the different programs.
Operator: And so we'll continue to do that. But along with the operating leverage and the productivity initiative, we do have a path back to the 18% margins for the end of the decade as the OEMs achieve their peak production rates across all the different programs. Great. Thanks, guys. Your next question comes from the line of Myles Walton of Wolfe Research. Your line is now open. Thanks. Good morning. Mike, I just wanted to follow up on the margins in composite materials. I understand that the press release is 20.5%, but that number is enormously greater than what you've ever done in the last several years and even back pre-COVID. You'd have to have 10% higher volumes. So was there anything in there that was non-normal? I understand it might not be non-GAAP one-timer, but anything non-normal in that margin?
Along with the operating leverage and the productivity initiative, we do have a path back to the 18% margins for the end of the decade as the OEMs achieve their peak production rates across all the different programs.
Michael Ciarmoli: Great. Thanks, guys.
Speaker #8: Great. Thanks,
Speaker #8: guys. Your next question
Moderator: Your next question comes from the line of Myles Walton of Wolfe Research. Your line is now open.
Speaker #3: Comes from the line of Miles Walton of Wolfe Research. Your line is now open.
Myles Walton: Thanks. Good morning. Mike, I just wanted to follow up on the margins in composite materials. I understand that the press release is 20.5%, but that number is enormously greater than what you've ever done in the last several years and even back pre-COVID. You'd have to have 10% higher volumes. So was there anything in there that was non-normal? I understand it might not be non-GAAP one-timer, but anything non-normal in that margin?
Speaker #9: Thanks. Good morning, Mike. I just wanted to follow up on the margins and composite materials. I understand that the press release is 20.5%, but that number is enormously greater than what you've ever done in the last several years, and even back pre-COVID.
Speaker #9: You'd have to have 10% higher volumes. So was there anything in there that was non-normal? I understand it might not be non-GAAP one-timer, but anything non-normal on that
Speaker #9: margin? No, there
Operator: No, there was nothing specifically unique in terms of any one-timers there. Again, we had a pretty very solid cost control here at the end of the quarter. And so that certainly contributed to that. Well, I think another thing that contributed was compensation. In other words, our incentive compensation didn't pay out at target because 2025 was a fairly light year for all the reasons that we mentioned. But unfortunately, that resulted, unfortunately for the management team, that resulted in lower payout on compensation. And that contributed to the margin, particularly in Q4 because that's when those costs. Yeah. The biggest true-up is in Q4 because you're truing up for the full year in Q4. Got it. So it's a reversal of accruals through the course of the year. What was the size of that reversal? I don't think we haven't revealed it.
Tom Gentile: No, there was nothing specifically unique in terms of any one-timers there. Again, we had a pretty very solid cost control here at the end of the quarter. And so that certainly contributed to that. Well, I think another thing that contributed was compensation.
Speaker #6: was nothing specifically unique for the in terms of any one-timers there. Again, we had a pretty very solid cost control here at the end of the quarter.
Speaker #6: And so that
Speaker #6: certainly contributed to that. Well, I think another
Speaker #5: thing that contributed was compensation. In other words, our incentive compensation didn't pay out at target because 2025 was a fairly light year. For all the reasons that we mentioned, but unfortunately, that resulted unfortunately for the management team, that resulted in lower payout on compensation.
In other words, our incentive compensation didn't pay out at target because 2025 was a fairly light year for all the reasons that we mentioned. But unfortunately, that resulted, unfortunately for the management team, that resulted in lower payout on compensation. And that contributed to the margin, particularly in Q4 because that's when those costs.
Speaker #5: And that contributed to the margin. And particularly in fourth quarter because that's when those
Speaker #5: costs.
Mike Lenz: Yeah. The biggest true-up is in Q4 because you're truing up for the full year in Q4.
Speaker #6: The fourth quarter, because you're truing up for the full year. Yeah, the biggest true-up is in Q4.
Myles Walton: Got it. So it's a reversal of accruals through the course of the year. What was the size of that reversal?
Speaker #9: Got it. So it's a reversible of accruals through the course of the year. What was the size of that
Tom Gentile: I don't think we haven't revealed it. So I'd rather not just go into that right now. But it was obviously fairly sizable because the year we just didn't hit the target. The other thing in this year's numbers that wasn't in last year, recall last year, I succeeded Nick. We had duplicate expenses at the CEO level for the back half of last year.
Speaker #5: I don't think it's we haven't revealed it. So I'd rather not just go into that right now. But it was obviously fairly sizable because the year we just didn't hit the targets.
Operator: So I'd rather not just go into that right now. But it was obviously fairly sizable because the year we just didn't hit the target. The other thing in this year's numbers that wasn't in last year, recall last year, I succeeded Nick. We had duplicate expenses at the CEO level for the back half of last year. Obviously, that didn't repeat this year. So that was also a contributor. And then, as Mike said, just a lot of cost control on SG&A, travel, professional fees, headcount, all the normal levers, we continued to focus on it. Okay. And then the longer-term question, Airbus, one of their head of commercial, their new head of commercial, talked about the new plane likely not having a composite fuselage, but obviously having a composite wing.
Speaker #5: The other thing in this year's numbers that wasn't in last year—recall, last year I succeeded Nick—we had duplicate expenses at the CEO level for the back half of last year.
Speaker #5: Obviously, that didn't repeat this year. So that was also a contributor. And then as Mike said, just a lot of cost control on SG&A.
Obviously, that didn't repeat this year. So that was also a contributor. And then, as Mike said, just a lot of cost control on SG&A, travel, professional fees, headcount, all the normal levers, we continued to focus on it.
Speaker #5: Travel, professional fees, headcount, all the normal levers we continue to focus
Speaker #5: on.
Myles Walton: Okay. Then the longer-term question, Airbus, one of their head of commercial, their new head of commercial, talked about the new plane likely not having a composite fuselage, but obviously having a composite wing. Can you just landscape us if you mapped an A320 to a new plane without a composite fuselage, but with a composite wing, what the shipset scaling would look like?
Speaker #9: And the longer-term question: Airbus—one of their heads of commercial, their new head of commercial—talked about the new plane likely not having a composite fuselage, but obviously having a composite wing.
Speaker #9: Can you just landscape us if you mapped an A320 to a new plane without a composite fuselage but with a composite wing, what the ship set scaling would look like?
Operator: Can you just landscape us if you mapped an A320 to a new plane without a composite fuselage, but with a composite wing, what the shipset scaling would look like? Right. Well, first of all, I still think the jury's out on the fuselage because you get lighter weight, better fuel performance, and you also get less maintenance. So that's something I think that the OEMs will continue to take into account. But right now, the A320 and the MAX are about 15% carbon fiber composite. We said that our shipset value on that is $200,000 to $500,000. On the 320, it's close to the upper end of that range, so call it $500,000. If you put a wing on the next narrow-body, that'll take the 15% to 30%.
Speaker #5: Right. Well, first of all, I still think the jury's out on the fuselage, because you get lighter weight, better fuel performance, and you also get less maintenance.
Tom Gentile: Right. Well, first of all, I still think the jury's out on the fuselage because you get lighter weight, better fuel performance, and you also get less maintenance. So that's something I think that the OEMs will continue to take into account. Right now, the A320 and the MAX are about 15% carbon fiber composite. We said that our shipset value on that is $200,000 to $500,000. On the 320, it's close to the upper end of that range, so call it $500,000.
Speaker #5: So that's something I think that the OEMs will continue to take into account. But right now, the A320 and the MAX are about 15% carbon fiber composite.
Speaker #5: And we've said that our shipset value on that is $200,000 to $500,000. On the 320, it's close to the upper end of that range.
Speaker #5: So call it $500,000. If you put a wing on the next narrowbody, that'll take the 15% to 30%. So double the $500,000 to a million per shipset at 75 per month.
If you put a wing on the next narrow-body, that'll take the 15% to 30%. So double the 500,000 to 1 million per shipset at 75 per month; it's a lot of carbon fiber. The other thing is the fuselage would probably take the 30% up to 50% and so that's also a possibility. And so at that point, you would take the 30% to 50%; the 1 million per shipset probably goes to 1.5 to 2 million per shipset at 75 aircraft per month.
Operator: So double the 500,000 to 1 million per shipset at 75 per month; it's a lot of carbon fiber. The other thing is the fuselage would probably take the 30% up to 50%. And so that's also a possibility. And so at that point, you would take the 30% to 50%; the 1 million per shipset probably goes to 1.5 to 2 million per shipset at 75 aircraft per month. So that just gives you a thought process on it. Now, the wing for sure, 100% will be carbon fiber because the characteristics of the wing, improved lift-drag ratio, increased range, reduced fuel consumption. So that's not a consideration anymore. There is still a lot of discussion on the fuselage. Of course, we're advocating for it. I think there's a lot of strong arguments for it.
Speaker #5: It's a lot of carbon fiber. The other thing is the fuselage would probably take the 30% up to 50%. And so that's also a possibility.
Speaker #5: And so that, at that point, you would take the 30% to 50%, the million per ship set probably goes to one and a half to two million per ship set at 75 aircraft per month.
Speaker #5: So that just gives you a thought process on it. Now, the wing for sure, 100% will be carbon fiber because the characteristics of the wing improve lift-drag ratio, increase range, reduce fuel consumption.
So that just gives you a thought process on it. Now, the wing for sure, 100% will be carbon fiber because the characteristics of the wing, improved lift-drag ratio, increased range, reduced fuel consumption. So that's not a consideration anymore. There is still a lot of discussion on the fuselage. Of course, we're advocating for it. I think there's a lot of strong arguments for it.
Speaker #5: So that's not a consideration anymore. There is still a lot of discussion on the fuselage. Of course, we're advocating for it. I think there's a lot of strong arguments for it.
Speaker #5: It's all about reducing the cost, improving the time, and reducing the capital required to produce it. And all of those things, I think, are in works.
Operator: It's all about reducing the cost, improving the time, and reducing the capital required to produce it. And all of those things I think are in works. There's lots of pilots going on. We'll continue to make the case. But if it is a fuselage, that takes up to 50% and about $2 million per shipset on the narrow-body. Perfect. Thanks, Tom. You're welcome. Your next question comes from the line of Scott Deuschle of Deutsche Bank. Your line is now open. Hey, good morning. Just one question. Tom, this business Seemann Composites was recently purchased by another public company, but it seems like something that would have been a good strategic fit for Hexcel given that they make advanced composites for the aerospace and defense market. I'm sorry. I was just curious if yeah, it's called Seemann Composites. Karman bought it, a space company.
It's all about reducing the cost, improving the time, and reducing the capital required to produce it. And all of those things I think are in works. There's lots of pilots going on. We'll continue to make the case. But if it is a fuselage, that takes up to 50% and about $2 million per shipset on the narrow-body.
Speaker #5: There's lots of pilots going on. We'll continue to make the case. But if it is a fuselage that takes up to 50%, and about $2 million per shipset on the narrow.
Speaker #5: body. Perfect.
Myles Walton: Perfect. Thanks, Tom.
Speaker #9: Thanks, Tom.
Tom Gentile: You're welcome.
Speaker #5: You're welcome, Mike.
Moderator: Your next question comes from the line of Scott Deuschle of Deutsche Bank. Your line is now open.
Speaker #3: Your next question comes from the line of Scott Deutschel of Deutsche Beck. Your line is now open.
Speaker #3: open. Hey, good morning.
Scott Deuschle: Good morning. Just one question. Tom, this business Seemann Composites was recently purchased by another public company, but it seems like something that would have been a good strategic fit for Hexcel given that they make advanced composites for the aerospace and defense market.
Speaker #10: Just one question. Tom, this business, Siemen Composites, was recently purchased by another public company. But it seems like something that would have been a good strategic fit for Hexcel, given that they make advanced composites for the aerospace and defense market.
Speaker #5: I'm sorry. What's that?
Tom Gentile: I'm sorry-
Speaker #10: I was just curious if yeah, it's called Siemen composites. Carmen bought it, a space company. I was just curious if that was an opportunity that you had the or a business you had an opportunity to look at in, if so, why Excel was not a buyer.
Scott Deuschle: I was just curious if yeah, it's called Seemann Composites. Karman bought it, a space company. I was just curious if that was an opportunity that you had the or a business you had the opportunity to look at and if so, why Hexcel was not a buyer.
Operator: I was just curious if that was an opportunity that you had the or a business you had the opportunity to look at. And if so, why Hexcel was not a buyer. Right. Unfortunately, I'm not familiar with Seemann. Do they make composite structures or do they make composite materials? I believe it's composite materials for the marine market, but yeah, it's all good. I'll pass it along. I'm sorry, just not familiar with that. So it's not in one of our core markets. And so we did not look at it. And so unfortunately, I just can't answer. Understood. Thank you. Your next question comes from the line of Sheila Kahyaoglu of Jefferies. Your line is now open. Good morning, guys, and thank you for the time.
Tom Gentile: Right. Unfortunately, I'm not familiar with Seemann. Do they make composite structures or do they make composite materials? I believe it's composite materials for the marine market, but yeah, it's all good. I'll pass it along. I'm sorry, just not familiar with that. So it's not in one of our core markets and so we did not look at it. And so unfortunately, I just can't answer.
Speaker #5: Right. Unfortunately, I'm not familiar with Siemens. Do they make composite structures, or do they make composite—
Speaker #5: material? I believe it's composite
Speaker #10: it's all good. I'll pass it along. materials for the marine market, but yeah,
Speaker #5: Okay. I'm sorry. I'm just not familiar with that. So it's not in one of our core markets. And so we did not look at it.
Speaker #5: And so I unfortunately just can't answer.
Speaker #10: Understood. Thank you.
Scott Deuschle: Understood. Thank you.
Moderator: Your next question comes from the line of Sheila Kahyaoglu of Jefferies. Your line is now open.
Speaker #3: Your next question comes from the line of Sheila Kayagulu of Jeffries. Your line is now open.
Sheila Kahyaoglu: Good morning, guys, and thank you for the time. Tom, maybe just to start off, just looking at your revenue assumptions, at least some of the shipset content you've helped frame on the commercial aero side, it seems like you're a little higher on Airbus deliveries than folks expect and a little lower on Boeing. So maybe what's driving some of those assumptions?
Speaker #11: Good morning, guys, and thank you for the time. Tom, maybe just to start off, just looking at your revenue assumptions, at least some of the ship set content you've helped frame on the commercial aero side, it seems like you're a little higher on Airbus deliveries than folks expect and a little lower on Boeing.
Operator: Tom, maybe just to start off, just looking at your revenue assumptions, at least some of the shipset content you've helped frame on the commercial aero side, it seems like you're a little higher on Airbus deliveries than folks expect and a little lower on Boeing. So maybe what's driving some of those assumptions? Well, on Boeing, I'll start there. On the MAX, we did see a lot of destocking last year. I know they're getting up to 42 aircraft per month, but our numbers really show them what they're pulling from us still a little bit lower than that. So yes, we are being probably a little bit more conservative on Boeing and on the 737. On the 787, I think we're right on top of them, 90 to 100. So it's really the 737, and it's more worried about the destocking, but we'll see.
Speaker #11: So maybe what's driving some of those assumptions?
Tom Gentile: Well, on Boeing, I'll start there. On the MAX, we did see a lot of destocking last year. I know they're getting up to 42 aircraft per month, but our numbers really show them what they're pulling from us still a little bit lower than that.
Speaker #5: Well, I'm falling off start there on the MAX. We did see a lot of destocking last year. I know they're getting up to 42 aircraft per month, but our numbers really show lower than that.
Speaker #5: Them, what they were pulling from us, still a little bit. So yes, we are being probably a little bit more conservative on Boeing and on the 370.
Yes, we are being probably a little bit more conservative on Boeing and on the 737. On the 787, I think we're right on top of them, 90 to 100. So it's really the 737, and it's more worried about the destocking, but we'll see.
Speaker #5: On the 870, I think we're right on top of them, 90 to 100. So it's really the 370, and it's more worried about the destocking.
Speaker #5: But we'll see. On Airbus, we're a little higher than consensus, but we're probably a little bit lower than the Airbus estimates. And again, we're a little bit lower than our bottoms-up demand management tool would indicate.
Operator: On Airbus, we're a little higher than consensus, but we're probably a little bit lower than the Airbus estimates. And again, we're a little bit lower than our bottoms-up demand management tool would indicate. So we have a lot of visibility and clarity on Airbus. And so that's why we are putting the peg where we are. We still think that the 80 is conservative on the Airbus A350 based on all of our bottoms-up work and all the top-down work and what the master schedule at Airbus says. So we're comfortable with it. We'll watch it throughout the year and monitor it to make sure that we're seeing evidence of it. But that's what all of our bottoms-up analysis is telling us. That makes sense.
On Airbus, we're a little higher than consensus, but we're probably a little bit lower than the Airbus estimates. And again, we're a little bit lower than our bottoms-up demand management tool would indicate. We have a lot of visibility and clarity on Airbus and so that's why we are putting the peg where we are.
Speaker #5: So we have a lot of visibility and clarity on Airbus. And so that's why we are putting the peg where we are. We still think that the 80 is conservative.
We still think that the 80 is conservative on the Airbus A350 based on all of our bottoms-up work and all the top-down work and what the master schedule at Airbus says. So we're comfortable with it. We'll watch it throughout the year and monitor it to make sure that we're seeing evidence of it. But that's what all of our bottoms-up analysis is telling us.
Speaker #5: On the Airbus A350, based on all of our bottoms-up work and all the top-down work, and what the master schedule at Airbus says, we're comfortable with it.
Speaker #5: We'll watch it throughout the year. And monitor it to make sure that we're seeing evidence of it. But that's what all of our bottoms-up analysis is telling us.
Sheila Kahyaoglu: That makes sense. Then, if I could ask one on margins, how do you think about just risks to profitability going forward, and how we should be thinking about the FX headwind?
Speaker #11: That makes sense. I mean, if I could ask one on margins. How do you think about just risks to profitability going forward, and how we should be thinking about the FX headwind?
Operator: And then, if I could ask one on margins, how do you think about just risks to profitability going forward, and how we should be thinking about the FX headwind? Well, FX is going to be a headwind. The dollar is lower. And Mike, maybe you can comment a little bit on this. Well, yeah, no, sure. Sheila, thanks. We talked about previously, the weakening of the dollar to the euro early last year shifted the effect of foreign exchange on earnings from a tailwind for the first half of the year to a headwind in Q3 and into Q4. And we'd certainly projected a higher headwind in Q4 versus Q3. But the 110 basis points that I called out in Q4, that included the settlement of certain short-term non-USD balances that influenced the year-over-year FX comparison to a greater degree than historically.
Tom Gentile: Well, FX is going to be a headwind. The dollar is lower and Mike, maybe you can comment a little bit on this.
Speaker #5: Well, FX is going to be a headwind. The dollar is lower. And Mike, maybe you can comment a little bit on—
Speaker #5: this. Well, yeah, no, sure.
Mike Lenz: Well, yeah, no, sure. Sheila, thanks. We talked about previously, the weakening of the dollar to the euro early last year shifted the effect of foreign exchange on earnings from a tailwind for the first half of the year to a headwind in Q3 and into Q4.
Speaker #2: Sheila, thanks. We talked about previously the weakening of the dollar to the euro early last year, which shifted the effect of foreign exchange on earnings from a tailwind for the first half of the year to a headwind in Q3 and into Q4.
Speaker #2: And we've certainly projected a higher headwind in Q4 versus Q3. But the 110 basis points that I called out in Q4, that included the settlement of certain short-term non-USD balances that influenced the year-over-year FX comparison to a greater degree than historically.
We'd certainly projected a higher headwind in Q4 versus Q3. But the 110 basis points that I called out in Q4, that included the settlement of certain short-term non-USD balances that influenced the year-over-year FX comparison to a greater degree than historically. So we don't anticipate that to be an ongoing trend. So I would not project the Q4 impact as the run rate into 2026. So, hope that helps.
Speaker #2: So we don't anticipate that to be an ongoing trend. So I would not project the Q4 impact as the run rate into 2026. So hope that helps.
Operator: So we don't anticipate that to be an ongoing trend. So I would not project the Q4 impact as the run rate into 2026. So, hope that helps. But we did build in headwind into 2026 into the plan. That's already baked in for headwind on foreign exchange. So that's already baked in. And it'll be there. We have a hedging program, so it'll be a little bit more muted than it might have otherwise been. But there is some headwind into 2026, and we incorporated that already into the outlook. Great. Thank you. Thanks, Sheila. Your next question comes from the line of Ron Epstein of Bank of America. Your line is now open. Yeah. Hey, good morning, guys. Thanks for the question. Tom, maybe just revisiting some of the stuff that we've already spoken about.
Tom Gentile: But we did build in headwind into 2026 into the plan. That's already baked in for headwind on foreign exchange. So that's already baked in. And it'll be there. We have a hedging program, so it'll be a little bit more muted than it might have otherwise been. But there is some headwind into 2026, and we incorporated that already into the outlook.
Speaker #5: But we did build in headwind into '26 into the plan. That's already baked in for headwind on foreign exchange, so that's already baked in.
Speaker #5: And it'll be there. We have a hedging program, so it'll be a little bit more muted than it might have otherwise been. But there is some headwind into '26, and we've incorporated that already into the—
Speaker #5: outlook. Great.
Sheila Kahyaoglu: Great. Thank you.
Speaker #11: Thank you.
Tom Gentile: Thanks, Sheila.
Speaker #5: Okay. Thanks, Sheila.
Speaker #3: Your next question comes from the line of Ron Epstein of Bank of America. Your line is now open.
Moderator: Your next question comes from the line of Ron Epstein of Bank of America. Your line is now open.
Speaker #1: Yeah. Hey. Hey, good morning, guys. Thanks for the question. Yeah. Tom, maybe just revisiting some of the stuff that we've already spoken about, but when we think about maybe a next-generation aircraft, you alluded to potentially lower fabrication costs, that kind of thing.
Ronald Epstein: Yeah. Hey, good morning, guys. Thanks for the question. Tom, maybe just revisiting some of the stuff that we've already spoken about but when we think about maybe a next-generation aircraft, you alluded to potentially lower fabrication costs, that kind of thing. Are you guys doing work on out-of-autoclave? I mean, can you just give us a sense on maybe some of the new tech that you all are looking at?
Operator: But when we think about maybe a next-generation aircraft, you alluded to potentially lower fabrication costs, that kind of thing. Are you guys doing work on out-of-autoclave? I mean, can you just give us a sense on maybe some of the new tech that you all are looking at? Right. So we are working with the OEMs, both of them, on production techniques to improve all of those characteristics that I talked about. Let me give you an example. Yes, we are working on out-of-autoclave, but it starts with layup. There's automated fiber placement has replaced hand layup. But the question is, how many kg/h can you lay up? If it's 20kg/h, we think we have techniques that could take it up to 80kg/h, maybe even double that to 160kg/h, making the tape wider and thicker and faster.
Speaker #1: Are you guys doing work on out-of-bottle clave? I mean, can you just give us a sense on maybe some of the new tech that you all are looking at?
Tom Gentile: Right. So we are working with the OEMs, both of them, on production techniques to improve all of those characteristics that I talked about. Let me give you an example. Yes, we are working on out-of-autoclave, but it starts with layup.
Speaker #5: Right. So we are working with the OEMs. Both of them. On production techniques to improve all of those characteristics that I talked about. Let me give you an example.
Speaker #5: Yes, we are working on out-of-bottle clave. But it starts with layout. There's automated fiber placement as replaced hand layout. But the question is, how many kilograms an hour can you lay up?
There's automated fiber placement has replaced hand layup. But the question is, how many kg/h can you lay up? If it's 20kg/h, we think we have techniques that could take it up to 80kg/h, maybe even double that to 160kg/h, making the tape wider and thicker and faster.
Speaker #5: If it's 20 kilograms an hour, we think we have techniques that could take it up to 80 kilograms an hour—maybe even double that to 160 kilograms an hour—by making the tape wider and thicker and faster.
Speaker #5: We're looking at not only pre-crate layup, but also dry layup. We're also looking at how can we improve the cure time on carbon fiber?
Operator: We're looking at not only prepreg layup, but also dry layup. We're also looking at how we can improve the cure time on carbon fiber. Today, it could be 12 hours. We think we have ways to take that down to 3 hours or even less than 2 hours. We're also looking at ways to improve non-destructive inspection and make that better. We're also looking at improved ways to do resin infusion at the point of manufacture. And then on top of that, we're looking at ways to improve joining techniques. So all these things improve the time it takes to build the part. It reduces the cost, and it also reduces the amount of capital. Capital being autoclaves, or it could be NDI type equipment, trim and drill, all of those things by all of the techniques that I just mentioned. So those are some of the levers.
We're looking at not only prepreg layup, but also dry layup. We're also looking at how we can improve the cure time on carbon fiber. Today, it could be 12 hours. We think we have ways to take that down to 3 hours or even less than 2 hours.
Speaker #5: Today, it could be 12 hours. We think we have ways to take that down to 3 hours or even less than 2 hours. We're also looking at ways to improve non-destructive inspection.
We're also looking at ways to improve non-destructive inspection and make that better. We're also looking at improved ways to do resin infusion at the point of manufacture. And then on top of that, we're looking at ways to improve joining techniques.
Speaker #5: And make that better. And also looking at improved ways to do resin infusion at the point of manufacturing. And then on top of that, is looking at ways to improve joining techniques.
Speaker #5: So, all these things improve the time it takes to build the part. It reduces the cost, and it also reduces the amount of capital.
So all these things improve the time it takes to build the part. It reduces the cost, and it also reduces the amount of capital. Capital being autoclaves, or it could be NDI type equipment, trim and drill, all of those things by all of the techniques that I just mentioned.
Speaker #5: Capital being autoclaves, or it could be NDI-type equipment. Trim and drill, all of those things. By all of the techniques that I just mentioned.
Speaker #5: So those are some of the levers. And yes, we are working very actively with the OEMs on those techniques. That's a big part. The production system is absolutely critical to the next-generation aircraft.
So those are some of the levers and yes, we are working very actively with the OEMs on those techniques. That's a big part. The production system is absolutely critical to the next-generation aircraft. Not just about the cost of the material, it's also about the whole production system.
Operator: And yes, we are working very actively with the OEMs on those techniques. That's a big part. The production system is absolutely critical to the next-generation aircraft. Not just about the cost of the material, it's also about the whole production system. Yeah, that makes a ton of sense. And if I may, just a second question real quick. Missile production going up a lot. I mean, you're just kind of there's been a lot of announcements about that, some big agreements with the big contractors. And a lot of the unmanned systems, these smaller systems are carbon fiber composite systems. When you look at the changing defense environment with the volume of everything kind of going up, particularly a lot of things that are made out of carbon fiber, how do you think about the potential opportunity there for you? Big opportunity.
Speaker #5: Not just about the cost of the material. It's also about the whole production
Speaker #5: system. Yeah.
Ronald Epstein: Yeah, that makes a ton of sense. And if I may, just a second question real quick. Missile production going up a lot. I mean, you're just kind of there's been a lot of announcements about that, some big agreements with the big contractors. Alot of the unmanned systems, these smaller systems are carbon fiber composite systems.
Speaker #1: That makes a ton of sense. And if I may, just a second question real quick. Missile production going up a lot. I mean, you're just kind of there's been a lot of announcements about that.
Speaker #1: It's a big agreement with the big contractors. And a lot of the unmanned systems, these smaller systems, are carbon fiber composite systems. When you look at the changing defense environment, with the volume of everything kind of going up, particularly a lot of things that are made out of carbon fiber, how do you think about the potential opportunity there for you?
When you look at the changing defense environment with the volume of everything kind of going up, particularly a lot of things that are made out of carbon fiber, how do you think about the potential opportunity there for you?
Tom Gentile: Big opportunity. Lightweight is so critical because range is important and durability is also important. Now, some of these drones, they don't carry people and they don't come back. They're one way. So it changes some of the requirements.
Speaker #5: Big opportunity. Lightweight is so critical because range is important. And durability is also important. Now, some of these drones are they don't carry people, and they don't come back.
Operator: Lightweight is so critical because range is important and durability is also important. Now, some of these drones, they don't carry people and they don't come back. They're one way. So it changes some of the requirements. But in general, range and strength are key. And our material addresses both of those issues. So this new defense that you were describing is a big opportunity for us. And one of the things I mentioned in my prepared remarks is we have started to strengthen our defense team so that we can address these markets. These are new markets. They don't exist today. They're growing very fast. We think we can play a big part in it. And that's why we're strengthening the team so that we can do that. Got it. Great. Thank you very much. Thanks, Mark.
Speaker #5: They're one-way. So it changes some of the requirements. But in general, range and strength are key. And our material addresses both of those issues.
In general, range and strength are key and our material addresses both of those issues. So this new defense that you were describing is a big opportunity for us. And one of the things I mentioned in my prepared remarks is we have started to strengthen our defense team so that we can address these markets. These are new markets. They don't exist today. They're growing very fast. We think we can play a big part in it. And that's why we're strengthening the team so that we can do that.
Speaker #5: So this new defense, that you were describing, is a big opportunity for us. And one of the things I mentioned in my prepared remarks is we have started to strengthen our defense team so that we can address these markets.
Speaker #5: These are new markets. They don't exist today. They're growing very fast. We think we can play a big part in it. And that's why we're strengthening the team so that we can do that.
Ronald Epstein: Got it. Great. Thank you very much.
Speaker #1: Got it. Great. Thank you very much.
Tom Gentile: Thanks, Ron.
Speaker #5: Thanks, Ron.
Speaker #3: Our last question for today comes from the line of Christine Lewag of Morgan Stanley. Your line is now open.
Operator: Our last question for today comes from the line of Kristine Liwag of Morgan Stanley. Your line is now open. Hey, good morning, everyone. Tom, looking at the production rates from Boeing and Airbus, it's clear that it seems like we're beyond the trough, and you've got stability and visibility in your business. Now that we're in this better place, I was wondering, can you discuss how you're thinking about the portfolio today? Over time, when you look at your exposure to OE, do you want to expand more into aftermarket? Do you want to expand more into defense or potentially go into more vertically integrated component structure? It'd be helpful to think about where the direction you see the business going in the next few years. Right. So certainly, we want to continue to grow, Kristine, and those things are all important.
Moderator: Our last question for today comes from the line of Kristine Liwag of Morgan Stanley. Your line is now open.
Kristine Liwag: Hey, good morning, everyone. Tom, looking at the production rates from Boeing and Airbus, it's clear that it seems like we're beyond the trough, and you've got stability and visibility in your business.
Speaker #4: Hey, good morning, everyone. Tom, looking at the production rates from Boeing and Airbus, it's clear that it seems like we're beyond the trough. And you've got stability and visibility in your business.
Now that we're in this better place, I was wondering, can you discuss how you're thinking about the portfolio today? Over time, when you look at your exposure to OE, do you want to expand more into aftermarket? Do you want to expand more into defense or potentially go into more vertically integrated component structure? It'd be helpful to think about where the direction you see the business going in the next few years.
Speaker #4: Now that we're in this better place, I was wondering, can you discuss how you're thinking about the portfolio today, over time, when you look at your exposure to OE?
Speaker #4: Do you want to expand more into aftermarket? Do you want to expand more into defense? Or potentially go into more vertically integrated component structure?
Speaker #4: It'd be helpful to think about where the direction is that you want to see the business going in the next few quarters.
Speaker #4: years. Right.
Tom Gentile: Right. So certainly, we want to continue to grow, Kristine, and those things are all important. But the number one priority for us right now in the immediate future is to focus exclusively on making sure we can ramp up on these production rates. That's going to generate so much operating leverage and so that's what our focus is.
Speaker #5: So certainly, we want to continue to grow. Christine and those things are all important. But the number one priority for us right now, in the immediate future, is to focus exclusively on making sure we can ramp up on these production rates.
Operator: But the number one priority for us right now in the immediate future is to focus exclusively on making sure we can ramp up on these production rates. That's going to generate so much operating leverage. And so that's what our focus is. That's a little bit why we did the ASR, is because we have great confidence that this is going to go up. We thought we were undervalued at the time, and this is an opportunity for us. And we want to make sure that we're laser-focused on executing it. On the other growth initiative that we are going to push very hard is defense. It's already about 35% of our current business, but we think it can be more. We think it's growing, not only in the US, but also in Europe and also in some other markets like Turkey, India, Brazil, some other markets.
Speaker #5: That's going to generate so much operating leverage. And so that's what our focus is. That's a little bit why we did the ASR, because we have great confidence that this is going to go up.
That's a little bit why we did the ASR, is because we have great confidence that this is going to go up. We thought we were undervalued at the time, and this is an opportunity for us. And we want to make sure that we're laser-focused on executing it.
Speaker #5: We thought we were undervalued at the time, and this is an opportunity for us. We want to make sure that we're laser-focused on executing it.
On the other growth initiative that we are going to push very hard is defense. It's already about 35% of our current business, but we think it can be more. We think it's growing, not only in the US, but also in Europe and also in some other markets like Turkey, India, Brazil, some other markets. We think we can play a big part there. So that's the focus for us in growth in the immediate future is in defense.
Speaker #5: The other growth initiative that we are going to push very hard is defense. It's already about 35% of our current business, but we think it can be more.
Speaker #5: We think it's growing, not only in the US, but also in Europe and in some other markets like Turkey, India, Brazil, and some other markets.
Speaker #5: And so we think we can play a big part there, and so that's the focus for us in growth in the immediate future—it's in defense.
Operator: And so we think we can play a big part there. So that's the focus for us in growth in the immediate future is in defense. Then, as I said, just to reinforce, the big priority for us over the next couple of years, absolutely laser-focused on executing on the rate ramps for all of our customers to make sure that we can deliver with quality and maintain a safe working product. Thank you very much. Thanks, Kristine. Thank you. This concludes our question and answer session for today, and this concludes the session. Thank you so much for attending. Have a wonderful day. Goodbye.
Then, as I said, just to reinforce, the big priority for us over the next couple of years, absolutely laser-focused on executing on the rate ramps for all of our customers to make sure that we can deliver with quality and maintain a safe working product.
Speaker #5: And then, as I said, just to reinforce, the big priority for us over the next couple of years is absolutely laser-focused on executing on the rate ramps for all of our customers to make sure that we can deliver with quality and maintain a safe work
Speaker #5: environment. Thank you very
Kristine Liwag: Thank you very much.
Tom Gentile: Thanks, Kristine.
Speaker #5: Thanks, much.
Speaker #5: Christine. Thank you.
Moderator: Thank you. This concludes our question and answer session for today, and this concludes the session. Thank you so much for attending. Have a wonderful day. Goodbye.
Speaker #3: This concludes our question and answer session for today. And this concludes the session. Thank you so much for attending. Have a wonderful day. Goodbye.
